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• Investors are growing wary of U.S. assets due to rising concerns over the national debt and potential tax cuts.
• Treasury yields have surged, impacting mortgage rates and the broader economy.
• The S&P 500 has seen significant declines as investors react to these economic worries.

Quick Brief

2-Minute Digest

Essential Context

The trend of “Sell America” on Wall Street is driven by investor concerns over the U.S. government’s spiraling debt and the potential impact of new tax cuts. The House of Representatives recently approved a bill that could add trillions of dollars to the federal deficit, alarming bond market investors.

Core Players

• U.S. Government – Implementing tax cuts and managing national debt
• Federal Reserve – Anticipated to make rate cuts in 2026
• Morgan Stanley – Optimistic about U.S. stocks and bonds despite current downturn
• Wall Street Investors – Reacting to bond market changes and economic forecasts

Key Numbers

• 5% – Yield on 30-year Treasury bonds, nearing pre-2008 financial crisis levels
• 4.59% – Current yield on 10-year Treasury bonds, up from 4.01% early last month
• 1.6% – Decline in S&P 500 over the past two days
• 816 points – Loss in Dow Jones Industrial Average in a single day
• $16 billion – Amount borrowed by the U.S. government in a recent 20-year bond auction

Full Depth

Complete Coverage

The Catalyst

The recent surge in Treasury yields is primarily driven by concerns over the U.S. government’s increasing debt. The House of Representatives’ approval of a tax cut bill, which is now heading to the Senate, has raised alarms about the federal deficit’s potential expansion.

“I wouldn’t look at this from an apocalyptical dynamic, but there are real ramifications,” said Nate Thooft, a senior portfolio manager at Manulife Investment Management, highlighting the impact on mortgage rates and other interest rates.

Inside Forces

The bond market’s reaction is significant because higher yields increase the cost of borrowing for consumers and businesses. This can slow down economic growth and affect various sectors, including housing and consumer spending.

Morgan Stanley, despite the current downturn, remains optimistic about U.S. stocks and bonds. They predict that anticipated Federal Reserve rate cuts in 2026, along with advancements in artificial intelligence, will support earnings growth and uplift stock prices.

Power Dynamics

The power dynamics at play involve the interplay between government policies, bond market reactions, and investor sentiment. The government’s decision to cut taxes, while potentially beneficial in the short term, raises long-term concerns about debt sustainability.

Investors are closely watching these developments, with some considering the “TINA” (There Is No Alternative) principle, which suggests that despite current worries, U.S. assets remain a viable investment option due to limited superior alternatives.

Outside Impact

The broader implications of rising Treasury yields and U.S. debt worries are far-reaching. The stock market has seen significant declines, with the S&P 500 falling 1.6% over two days and the Dow Jones Industrial Average losing 816 points in a single day.

Consumer and business confidence could be affected, leading to potential economic slowdowns. However, Morgan Stanley’s optimistic outlook suggests that these impacts may be temporary and that U.S. assets could rebound in the coming year.

Future Forces

Looking ahead, several factors will influence the trajectory of U.S. assets. Anticipated Federal Reserve rate cuts in 2026, a weaker dollar, and efficiency gains driven by artificial intelligence are expected to support earnings growth.

However, the path forward is not without challenges. The Senate’s decision on the tax cut bill and subsequent actions by the Federal Reserve will be crucial in determining the direction of the economy and the bond market.

Data Points

• May 22, 2025: House of Representatives approves tax cut bill
• May 21, 2025: U.S. government auctions 20-year bonds with a yield of 5.047%
• 2026: Anticipated Federal Reserve rate cuts
• 10 basis points: Increase in 10-year Treasury yield over four days
• 1.4%: Decline in Nasdaq composite