The 30-year Treasury yield jumped more than 10 basis points, topping 5%, before easing just below that threshold by midday.
The last time it touched 5% was in the immediate aftermath of Trump’s much steeper-than-expected “reciprocal tariffs,” which sparked a massive selloff and raised fears that investors would turn away from U.S. assets broadly.
Unlike last month’s tariff-driven spike in yields, Monday’s action came as the bond market grappled with reminders that the U.S. debt situation is worsening and could soon deteriorate at an even faster clip.
But lawmakers are trying to dig a deeper fiscal hole. On Sunday, Republicans on the House Budget Committee advanced a tax-and-spending bill after failing to get enough votes to do so on Friday.
The legislation would extend tax cuts from Trump’s first term and add new ones. While it also calls for less spending, the tax cuts will still deepen the budget deficit by trillions of dollars, further worsening the fiscal picture that Moody’s warned on.
“We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration,” Moody’s said Friday.
“The Bond Vigilantes might weigh in on the subject if Trump manages to ram a bill through Congress that they consider to be ugly for the deficit outlook rather than beautiful,” he wrote. “Increasing the odds of a spike in the bond yield would be higher-than-expected inflation readings in coming months resulting from Trump’s tariffs.”
