U.S. Stocks May See Further Downside As Treasury Yields Continue To Rise

The major U.S. index futures are currently pointing to a lower open on Thursday, with stocks likely to see further downside following the pullback seen over the two previous sessions.

Concerns about a recent surge by treasury yields may continue to weigh on Wall Street, as the thirty-year bond yield reaches its highest levels since 2023.

Treasury yields have jumped amid concerns about the fiscal impact of a Republican tax cut bill, which passed the House in a largely party-line vote early this morning.

Analysts warn the bill could add trillions to the federal government’s already massive $36.2 trillion debt pile. The plan has sparked fears of an even wider deficit, especially as interest payments continue to soar.

In a post on Truth Social, President Donald Trump called the bill “arguably the most significant piece of Legislation that will ever be signed in the History of our Country” and urged the Senate to send the bill to his desk as soon as possible.

On the U.S. economic front, a report released by the Labor Department unexpectedly showed a slight decline by first-time claims for U.S. unemployment benefits in the week ended May 17th.

Following a moderate pullback during Tuesday’s session, stocks showed a more substantial move to the downside during trading on Wednesday. The major averages rebounded from an initial decline but once again slumped into negative territory as the day progressed.

The major averages ended the day off their worst levels but still sharply lower. The Dow plunged 816.80 points or 1.9 percent to 41,860.44, the S&P 500 slumped 95.85 points or 1.6 percent to 5,844.61 and the Nasdaq tumbled 270.07 points or 1.4 percent to 18,872.64.

The weakness on Wall Street came amid lingering uncertainty about the outlook for trade and the global economy following the surge seen over the past several weeks.

Stocks have shown a substantial recovery from their early April lows, but traders have recently been questioning the strength of the rebound amid a lack of clear progress on new trade deals.

A continued increase by bond yields also generated selling pressure, with the thirty-year bond yield climbing above 5 percent due to concerns a new U.S. tax bill could worsen the country’s deficit.

President Donald Trump’s sweeping tax and spending bill is one step closer to a full vote in the House of Representatives, with economists warning the proposal would add more than $2.5 trillion to the federal debt over the next decade.

Treasury yields saw further upside after the Treasury Department revealed this month’s auction of $16 billion worth of twenty-year bonds attracted below average demand.

The twenty-year bond auction drew a high yield of 5.047 percent and a bid-to-cover ratio of 2.46, while the ten previous twenty-year bond auctions had an average bid-to-cover ratio of 2.58.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

Airline stocks showed a substantial move to the downside on the day, resulting in a 3.7 percent nosedive by the NYSE Arca Airline Index.

Considerable weakness also emerged among banking stocks, as reflected by the 3.1 percent slump by the KBW Bank Index.

Oil service, housing and commercial real estate stocks also saw notable weakness, while gold stocks bucked the downtrend amid a continued increase by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are slumping $0.91 to $60.66 a barrel after falling $0.46 to $61.57 a barrel on Wednesday. Meanwhile, after jumping $28.90 to $3,313.50 an ounce in the previous session, gold futures are slipping $3.10 to $3,310.40 an ounce.

On the currency front, the U.S. dollar is trading at 143.54 yen versus the 143.68 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1289 compared to yesterday’s $1.1331.

Asia

Asian stocks followed Wall Street lower on Thursday after longer-dated U.S. Treasury yields hit their highest levels in 18 months on concerns that a new budget proposal could swell the country’s federal deficit.

U.S. President Donald Trump is championing an extension of his 2017 tax cuts, which analysts warn could add trillions to the federal government’s already massive $36.2 trillion debt pile. The plan has sparked fears of an even wider deficit, especially as interest payments continue to soar.

Former Treasury Secretary Steven Mnuchin said during a panel discussion at the Qatar Economic Forum that he’s more alarmed by the growing budget deficit than the trade deficit and urged Washington to prioritize fiscal repair.

The dollar stayed weak in Asian trading on U.S. fiscal woes and gold scaled a two-week high, while oil extended losses for a third straight session after a surprise inventory build and amid Iran-U.S. nuclear talks.

China’s Shanghai Composite Index slipped 0.2 percent to 3,380.19 and Hong Kong’s Hang Seng Index slumped 1.2 percent to 23,544.31 on U.S. fiscal concerns. Baidu lost 4 percent after posting a marginal rise in first quarter revenues.

Japanese markets fell notably as the yen hit a new two-week high against a broadly weaker dollar and Japan’s 10-year government bond yield climbed above 1.55 percent, edging closer to levels last seen in 2008.

Investors ignored government data that showed Japan’s core machinery orders rose 13.0 percent in March from the previous month.

Meanwhile, in a rare and explicit statement, U.S. Treasury Secretary Scott Bessent and Japanese Finance Minister Katsunobu Kato agreed on Wednesday that the dollar-yen exchange rate currently reflects fundamentals.

The Nikkei 225 Index fell 0.8 percent to 36,985.87, hitting a two-week low. The broader Topix Index settled 0.6 percent lower at 2,717.09.

Seoul stocks tumbled as the local currency jumped to a six-month high after reports suggested that the United States had demanded Seoul come up with strong measures to boost the won.

The Kospi slumped 1.2 percent to 2,593.67, with Samsung Electronics, SK Hynix, Samsung Biologics and Hyundai Motor falling 2-3 percent.

Australian markets ended lower, dragged down by banks and consumer stocks. Gold miners logged one-month closing highs as spot gold prices hit a two-week high on worries about Trump’s tax plan.

The benchmark S&P/ASX 200 Index fell 0.5 percent to 8,348.70, while the broader All Ordinaries Index closed down 0.5 percent at 8,571.40.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index slipped 0.3 percent to 12,662.25.

Europe

European stocks have moved lower on Thursday as investors react to a U.S. Treasury sell-off, mixed regional data and some disappointing earnings.

30-year U.S. Treasury yields topped 5.09 percent on deficit fears tied to stalled U.S. budget bill negotiations.

In economic news, the Euro zone’s private sector returned to contraction in May, with PMI Composite falling from 50.4 to 49.5, hitting a six-month low.

The Ifo institute’s business climate index for Germany rose to 87.5 in May from 86.9 in April, thanks to less gloomy expectations.

France’s manufacturing sentiment index dropped to 97 in May from 100 in April on deteriorating global orders and personal production expectations, survey data from the statistical office INSEE showed. The expected score was 99.

U.K. public sector net borrowing rose by GBP 1.0 billion to GBP 20.2 billion in April, marking the highest borrowing since April 2021 and coming above economists’ forecast of GBP 18.0 billion, according to data from the Office for National Statistics.

The French CAC 40 Index is down by 1.3 percent, the German DAX Index is down by 1.1 percent and the U.K.’s FTSE 100 Index is down by 1.0 percent.

Freenet AG shares plummeted 15 percent after the telecommunications firm reported a near 33 percent decline in its first-quarter profit.

Ticketing giant and concert promoter CTS Eventim slumped 11.5 percent after Q1 net income and margins came in below estimates.

British Land Company, a real estate investment and development company, tumbled almost 5 percent after saying it expects earnings to be flat next year.

Similarly, telecommunications company BT Group fell over 1 percent after saying earnings this year will be little changed.

Airline EasyJet lost 3.5 percent after widening its first-half loss.

Johnson Matthey soared 27 percent. The industrial group confirmed that it is in advanced discussions over a potential sale of a unit involved in the production of sustainable aviation fuel.

U.S. Economic News

A report released by the Labor Department on Thursday unexpectedly showed a slight decline by first-time claims for U.S. unemployment benefits in the week ended May 17th.

The Labor Department said initial jobless claims edged down to 227,000, a decrease of 2,000 from the previous week’s unrevised level of 229,000. The dip surprised economists, who had expected jobless claims to inch up to 230,000.

Meanwhile, the report said the less volatile four-week moving average crept up to 231,500, an increase of 1,000 from the previous week’s unrevised average of 230,500.

At 10 am ET, the National Association of Realtors is due to release its report on existing home sales in the month of April. Existing home sales are expected to increase to an annual rate of 4.13 million in April after plunging to a rate of 4.02 million in March.

The Treasury Department is scheduled to announce the details of this month’s auctions of two-year, five-year and seven-year notes at 1 pm ET.

At 2 pm ET, New York Federal Reserve President John Williams is due to deliver the keynote before Monetary Policy Implementation Workshop: “Unwinding Large Central Bank Balance Sheets.”