Dow sinks 800 points as bond market starts to freak out over Trump’s tax bill

Stocks, bonds and the dollar fell on Wednesday as concerns mount about the premier status of American assets.

The Dow closed lower by 817 points, or 1.91%. The broader S&P 500 slid 1.61% and the tech-heavy Nasdaq Composite fell 1.41%. The three major indexes each posted their worst day in one month.

Stocks moved sharply lower and bonds sold off after a 1 p.m. ET auction for 20-year Treasury notes that saw weak demand and was “disappointing,” according to Chip Hughey, managing director for fixed income at Truist Advisory Services.

While the 20-year Treasury note usually garners less attention than the 10-year or 30-year notes, all eyes have been on investors’ perception of Treasuries since Moody’s on Friday downgraded US government debt.

The Treasury sold $16 billion worth of 20-year bonds, and the auction settled with a 20-year Treasury yield above 5%, signaling investors are demanding higher rates to hold US debt. The auction settled with a high yield of 5.047% compared to 4.83% at the last 20-year auction, in February.

The weak demand for US Treasuries comes as Wall Street is already fretting over the potential for President Donald Trump’s “big, beautiful” tax bill to add to the deficit and put pressure on the federal debt burden at a time when there is heightened uncertainty about the safe-haven status of American assets.

Treasury yields have pushed higher in recent days after Moody’s announcement Friday, which stripped the United States of its last perfect credit rating. Bond prices and yields trade in opposite directions.

The yield on the 10-year Treasury note on Wednesday rose to 4.59% to hit its highest level since February and the yield on the 30-year Treasury rose above 5% to hit its highest level since 2023.

“Although Moody’s decision to downgrade the US’s sovereign credit rating on Friday from Aaa to Aa1 was unsurprising, it does add focus on the real issues at hand: the US’s growing deficit and debt burden,” Hughey said.

Higher bond yields can also entice investors and pull them away from other assets, putting pressure on the stock market.

Stocks were lower Wednesday morning as Republicans in Congress tried to advance Trump’s tax bill.

“Recent budget deliberations in Washington are not offering global investors much solace that these challenges are being incorporated into the decision-making process,” Hughey said.

The ratio of federal debt to gross domestic product, or the total value of goods and services produced in the economy, was 123% in 2024, up from 104% in 2017, according to the Treasury Department.

“We’re now talking about deficits and a national debt-to-GDP ratio that are really going to be unprecedented, except for recent recessionary times,” Alan Auerbach, a professor of economics at UC Berkeley, previously told CNN.

US stocks were coming off a session in the red. The S&P 500 on Tuesday snapped a six-day winning streak. While the S&P 500 has wavered this week, it is up 17% from its lowest point this year after staging a sharp rebound in the past month.

Wall Street’s fear gauge, the CBOE Volatility Index, surged more than 15%. The US dollar index, which measures the dollar’s strength against six major foreign currencies, slid 0.5%.

Bitcoin surged to an all-time record high above $109,400 on Wednesday morning before paring gains and trading around $107,000. The cryptocurrency, which is highly volatile, has surged more than 40% since dropping just below $75,000 in early April.