The jobs report triggered a significant surge in bond prices, hinting at a potential Federal Reserve rate cut in September. The nonfarm payrolls for July fell short of expectations, with downward revisions to May and June’s figures. The 2-year note yield plummeted, while the 10-year and 30-year Treasury note yields also declined. Further contributing to the market’s reaction, Federal Reserve Governor Adriana Kugler announced her resignation, and President Trump updated tariff rates.
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Concerns over the US government’s debt and deficit, exacerbated by Moody’s credit rating downgrade, fueled a broad market sell-off Wednesday. Weak demand at a 20-year Treasury note auction, resulting in higher yields, underscored investor anxieties. This, coupled with the advancement of a potentially deficit-increasing tax bill, further pressured stocks, bonds, and the US dollar. The Dow plummeted over 800 points, marking the worst day for major indexes in a month, while the CBOE Volatility Index spiked significantly.
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Moody’s downgrade of the U.S. credit rating to Aa1 from Aaa sent Treasury yields sharply higher on Monday, with the 30-year yield reaching 5.03%, its highest level since November 2023. This increase, driven by investors selling bonds, saw the 10-year yield climb to 4.513% and the 2-year yield rise to 3.993%. The downgrade cited rising government debt and interest payments as contributing factors, mirroring a similar situation in 2023 when tariffs caused a comparable yield spike. Consequently, stock futures fell significantly.
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John Q. Hosedrinker