The Dow plunged by 817 points, or 1.91%, on Wednesday as concerns mounted over the status of American assets. The S&P 500 and the tech-heavy Nasdaq Composite also faced steep declines, each posting their worst day in a month. The broader S&P 500 slid 1.61%, while the Nasdaq fell 1.41%.
Stocks and bonds were sharply lower after a lackluster 1 p.m. ET auction for 20-year Treasury notes. The Treasury sold $16 billion worth of these bonds, but the auction saw weak demand, signaling heightened investor apprehension about U.S. debt. The auction settled with a yield of 5.047%, up from 4.83% at February’s auction.
This weakness in demand comes amidst growing concerns over President Donald Trump’s tax bill, which some fear could increase the federal deficit and pressure the U.S. debt burden. Trump’s tax bill has been a contentious topic in Washington, further spooking global investors who are already wary following Moody’s downgrade of U.S. sovereign credit from Aaa to Aa1 last Friday. “Although Moody’s decision to downgrade the US’s sovereign credit rating was unsurprising, it highlights the critical issue of the growing U.S. deficit and debt burden,” said Chip Hughey, managing director for fixed income at Truist Advisory Services.
Bond yields have been rising since Moody’s announcement, prompting higher returns for investors.
Dow drops on bond market worries
On Wednesday, the yield on the 10-year Treasury note rose to 4.59%, the highest level since February.
The yield on the 30-year Treasury surpassed 5%, reaching its highest level since 2023. Alan Auerbach, a professor of economics at UC Berkeley, noted, “We’re now talking about deficits and a national debt-to-GDP ratio that are really going to be unprecedented, except for recent recessionary times.” The ratio of federal debt to gross domestic product was 123% in 2024, up from 104% in 2017, according to the Treasury Department. The stock market’s recent turbulence continued as the S&P 500 snapped a six-day winning streak on Tuesday.
Despite the week’s downturn, the index remains up 17% from its lowest point this year. Market volatility surged, with Wall Street’s fear gauge, the CBOE Volatility Index, increasing by over 15%. Additionally, the U.S. dollar index, which measures the dollar’s strength against six major foreign currencies, slid 0.5%.
In the cryptocurrency market, Bitcoin reached an all-time high above $109,400 on Wednesday before settling around $107,000. The cryptocurrency has experienced significant volatility, climbing more than 40% since dipping below $75,000 in early April. The market’s reaction underscores the growing anxiety over U.S. fiscal policy and its potential long-term impacts on both national and global financial stability.
