Wall Street is keeping a close eye on the bond market after long-term Treasury yields spiked last week as investors reassessed the US fiscal outlook in light of President Trump’s proposed tax legislation.
The 30-year Treasury yield (^TYX) surged as high as 5.15% last week, hovering near its highest level since 2007. Yields pulled back slightly in early Tuesday trading, with the 30-year yield dipping back below 5% following reports that Japan’s central bank may scale back its own bond issuance.
Still, investor anxiety remains elevated.
While ballooning deficits have long been a concern, the current wave of unease reflects a collision of both new and familiar threats, with fiscal fears, stubborn inflation, and political uncertainty top of mind. At the center of it all is Trump’s newly advanced tax bill, which cleared the House last week and is now headed to the Senate.
“We’re concerned about the 10-year and the 30-year in particular as it pertains to the fiscal position, and that makes it much more difficult to forecast,” Eric Winograd, chief economist at AllianceBernstein, told Yahoo Finance on Tuesday.
Historically, Treasury yields have followed the business cycle and expectations for Fed policy. But with the “big beautiful bill” projected to add $4 trillion to the national debt over the next decade, fiscal risk has become a key driver of long-term rates.
The legislation proposes sweeping cuts to individual and corporate tax rates but lacks swift and substantial spending cuts, deepening investor concerns over the US’s already fragile fiscal situation.
“There’s no evidence of fiscal restraint,” Winograd said. “If anything, we’re seeing additional fiscal deterioration. As a result, we expect the yield curve to steepen, and that longer-dated yields [will] remain sticky.”
