Stocks closed down significantly on Wednesday as bond yields spiked amid deficit concerns centered on a tax cut measure under consideration in the U.S. House as part of a megabill supporting President Donald Trump’s second-term agenda.
The Dow Jones Industrial Average closed down 817 points, or 1.9%, while the S&P 500 declined 1.6%. The tech-heavy Nasdaq dropped 1.4%.
The sell-off on Wall Street coincided with a surge in bond yields, which in turn raised the cost of U.S. borrowing and stoked investor fears about the wider impact across the economy.
The 10-year Treasury yield jumped from 4.48% to 4.58%, reaching its highest level since February.
The nonpartisan Congressional Budget Office on Tuesday found the tax policies backed by Trump would add $3.8 trillion to the national debt.
In addition to extending the 2017 Trump tax cuts, the “One Big Beautiful Bill Act” contains changes to Medicaid and immigration policy, among other measures. Republican members of the House are aiming to pass the bill by Memorial Day.
The bond sell-off arrives at a moment of heightened volatility in Treasury markets. Long-term bond yields soared last month in the immediate aftermath of Trump’s “Liberation Day” tariffs.
A U.S. credit downgrade at Moody’s last week further roiled debt markets.
Bond yields rise as bond prices fall. When a sell-off hits and demand for bonds dries up, it sends bond prices lower. In turn, bond yields move higher.
The yield for long-term Treasury bonds helps set interest rates for a host of consumer loans, including mortgages and credit cards.
When interest rates rise, businesses also face higher borrowing costs, making it less likely that firms would move forward with an office expansion or round of hiring, analysts previously told ABC News. In turn, such conditions risk an economic slowdown.
