US stocks and bonds drop as treasury auction highlights debt fears amid Trump’s tax push

US stocks and government bonds slid on Wednesday as investors reacted sharply to a weak Treasury auction and renewed fears about the country’s growing debt load, driven by President Donald Trump’s sweeping tax cut proposal. The S&P 500 dropped 1.6%, while the yield on 30-year Treasury bonds surged to 5.096%—its highest level since late 2023, the Financial Times reported.

The sell-off deepened after the US Treasury auctioned $16 billion in 20-year bonds at a 5% coupon, the highest since the bond’s reintroduction in 2020. Demand was soft, reinforcing concerns about investor appetite for US debt amid rising deficits. Primary dealers—major banks required to absorb unsold bonds—took 16.9% of the offering, slightly above average, a sign that broader market demand remains cautious.

Trump’s “big, beautiful” bill fuels market unease

The market reaction came as Republican leaders in Congress ramped up efforts to bring Trump’s proposed tax overhaul to a vote. Dubbed the “big, beautiful bill” by the president, the legislation aims to extend key tax cuts first enacted in 2017, a move independent analysts project would add at least $3 trillion to the national debt over the next decade.

House Speaker Mike Johnson announced progress on a deal with GOP holdouts concerning state tax deductions, but the compromise has drawn backlash from fiscal conservatives. Members of the far-right Freedom Caucus are demanding deeper spending cuts, particularly in healthcare and clean-energy incentives.

In a bid to unify Republican support, the White House invited Freedom Caucus members for direct talks and sent National Economic Council Director Kevin Hassett to Capitol Hill. Press Secretary Karoline Leavitt described the meetings as “productive” and said they had moved negotiations “in the right direction.”

Markets respond to debt downgrade and bond oversupply

Investor confidence has already been shaken by Moody’s recent decision to strip the US of its top-tier triple-A credit rating, citing fiscal irresponsibility and ballooning deficits. The downgrade amplified long-running concerns about the government’s borrowing trajectory and its ability to manage rising interest payments.

Analysts warn that the weak Treasury auction underscores a deeper issue: the market’s discomfort with long-term debt. “Markets really have no appetite for duration here,” said Pooja Kumra, rates strategist at TD Securities. “We expect all long-end auctions to be highly scrutinised by markets, especially in light of the budget bill.”

Ian Lyngen, head of US rates strategy at BMO Capital Markets, added: “A soft 20-year auction, combined with deficit concerns, has tilted the market toward higher yields.”

Equities stumble, tech stocks hit

The equity market mirrored the bond market’s anxiety. Over 95% of stocks in the S&P 500 closed in the red, with financials, real estate, and healthcare sectors posting the steepest losses. A concurrent sell-off in Big Tech added to the decline, after OpenAI revealed a $6.4 billion deal to acquire io, the hardware start-up led by former Apple design chief Sir Jony Ive.

The announcement rattled tech investors and contributed to share price drops across major players. Apple lost 2.3%, while Amazon, Nvidia, and Microsoft each declined by more than 1%. The Nasdaq Composite fell 1.4%.

Dollar slips as fiscal risks grow

The dollar index, which tracks the US currency against a basket of major global currencies, declined 0.6% on the day. The pullback reflects broader concerns that rising debt, combined with sluggish demand for Treasuries and ongoing political wrangling over fiscal policy, could ultimately undermine the US dollar’s global standing.

As Trump’s tax bill nears a potential vote and market scrutiny intensifies, the coming weeks could prove pivotal—not only for the bill’s passage but for investor confidence in the long-term health of the US economy.