US yields edge up as fiscal concerns remain in focus

Longer-dated US Treasury yields edged higher on Tuesday on concerns that a tax-cut bill being debated in Congress will worsen the US budget deficit at a faster pace than previously expected and as corporate debt supply picked up.

President Donald Trump pressed his fellow Republicans to unite behind the sweeping bill, but apparently failed to convince a handful of holdouts who could still block a package that encompasses much of his domestic agenda.

Moody’s Investors Service on Friday cut the US sovereign credit rating from the top “Aaa” rating, citing a worsening debt and fiscal outlook.

The downgrade brought focus back to the package that is working its way through Congress and the scope of the deficits, said Jan Nevruzi, US rates strategist at TD Securities in New York.

“While we’re waiting for everything from the tariffs to make its way through data, the fiscal story is certainly getting a lot more attention,” he added.

Concerns over the tax bill helped to push yields higher on Monday, with 30-year yields reaching an 18-month high.

Investors and Federal Reserve officials are waiting to see how trade tariffs imposed by Washington and counter-duties from other countries will impact the economy as the Trump administration also makes deals to reduce levies with some trading partners.

It could take months before the impact of tariffs is clearly seen in US economic data.

High uncertainty over the Trump administration’s policies, including trade, could slow the economy significantly as households and businesses put spending and investment decisions on hold, said St. Louis Federal Reserve Bank president Alberto Musalem.

Corporate debt supply weighed on the market as companies rushed to sell bonds before markets slowed down ahead of Monday’s US Memorial Day holiday.

The Treasury Department will also sell USD 16 billion in 20-year bonds on Wednesday and USD 18 billion in 10-year Treasury Inflation-Protected Securities on Thursday.

The 2-year note yield, which typically moves in step with interest rate expectations, fell 1.7 basis points to 3.966%.

The yield on benchmark US 10-year notes rose 0.2 basis points to 4.477%. It reached 4.564% on Monday, the highest since April 11.

The yield curve between two-year and 10-year notes steepened to 51 basis points.

The 30-year bond yield gained 2.3 basis points to 4.965%. On Monday, it touched 5.037% in intra-day trading, the highest since November 2023.

(Reporting By Karen Brettell, Editing by Nick Zieminski and Nia Williams)