30-Year Treasury Yields Near The 08' Financial Crisis Level as Trump Tax Bill Sparks Another Market Turmoil

After President Trump's tax reform bill narrowly passed the House of Representatives, U.S. long-term Treasury bonds and stock index futures declined.

The yield on 30-year Treasury bonds approached 5.14%, just a step away from its peak during the financial crisis. S&P 500 index futures fell 0.3%, signaling a potential third consecutive day of losses for the benchmark index. The dollar exchange rate fluctuated, while Bitcoin continued to hit record highs. Oil prices retreated.

The multi-trillion-dollar bill advanced by U.S. lawmakers, while avoiding year-end tax hikes, comes at the cost of increasing the federal debt burden.

Earlier, Moody's downgrade had brought the issue of ballooning fiscal deficits into sharp focus. These concerns were reflected in the Treasury market- just as the S&P 500 rebounded to the edge of a bull market, bond market sentiment soured again.

"Not shockingly, the long-term U.S. fiscal situation is on an unsustainable path with spending levels YTD surprising to the upside again, with only 2020/2021 trends likely to be worse when the U.S. reaches its September fiscal year-end," Wolfe Research strategist Chris Senyek wrote. "Our sense is bond vigilantes are likely to start 'pushing back' on this unsustainable long-term outlook encapsulated in the tax bill working its way through Congress by sending long-term yields higher,"

On Thursday, the yield on 10-year Treasuries rose 1 basis point to 4.61%. The bond market's concern is that the tax bill will add trillions more to an already massive deficit at a time when investor appetite for U.S. assets is waning.

Strategist Mark Cranfield noted that while the bill's passage would not immediately push the 10-year Treasury yield to 5%, it would add momentum to a steady rise in yields as bond vigilantes demand higher risk premiums.

Later on Thursday, S&P Global will release preliminary May manufacturing and services Purchasing Managers' Index (PMI) data. According to economists' forecasts, industrial weakness may persist, while service sector activity could see a slight rebound. Weekly jobless claims data will also be released.

JPMorgan Chase CEO Jamie Dimon warned that the possibility of stagflation cannot be ruled out as the U.S. faces multiple risks, including geopolitical tensions, fiscal deficits, and price pressures.