The bond market is back in the spotlight after weak demand at a U.S. Treasury auction pushed yields to multi-year highs, fueling concerns that bond vigilantes are punishing Washington for fiscal mismanagement.
The yield on the 30-year Treasury bond peaked at 5.1% on Wednesday, its highest since November 2023, according to Fed data.
Yields on the 10-year Treasury note also climbed above 4.6%, reaching their highest point since February.
The bond market reacted sharply after the latest 20-year Treasury auction revealed weak demand, with the highest yield reaching nearly 5.05%, up from 4.81% one month earlier.
“Keep watching the bond market,” wrote The Kobeissi Letter, a widely-followed market commentator.
“Today was different because demand for the bond auction was weak. In other words, investors wanted to buy these bonds for less than initially expected,” the commentary added.
Today was different because demand for the bond auction was weak.
undefined The Kobeissi Letter (@KobeissiLetter) May 21, 2025
In other words, investors wanted to buy these bonds for LESS than initially expected.
The high yield came in at 5.047%, well above expectations of 5.035%.
When bond prices fall, yields rise, as we just saw. pic.twitter.com/AotvtuJaWn
Economists pointed to reckless U.S. deficit spending, rising inflation expectations, and the Fed’s persistent stance on interest rates as key drivers behind the recent surge in yields.
“We have a legacy deficit problem and it doesn't seem to be going away,” said Mischler Financial Group managing director Tom di Galoma.
“There’s just too much debt out there, and I think the market’s fighting with the government right now and trying to figure out if we can get this deficit down,” he said.
On May 19, Investors Observer reported that bond vigilantes were pushing back against President Trump’s deficit-expanding tax plan in a last-ditch effort to force fiscal discipline.
Trump’s so-called “Big, Beautiful Bill” may face an uphill battle as Republicans scramble to secure support from remaining holdouts.
A big, beautiful mistake?
While many Americans would welcome a tax cut, slashing government revenue amid a national debt nearing $36 trillion would only worsen the fiscal outlook, according to a new analysis by the Congressional Budget Office (CBO).
If passed in its current form, Trump’s bill would add $3.8 trillion to the federal deficit over the next decade, the CBO said.
A separate forecast from the University of Pennsylvania’s Penn Wharton Budget Model also projected that, despite a short-term boost to GDP, the legislation would increase the deficit by $3.3 trillion over the same period.
Beyond the tax cuts, the proposed legislation includes $350 billion in new spending, with approximately $150 billion allocated to the Pentagon for increased defense funding.
Republicans argue that the lost revenue will be offset by stronger economic growth and targeted cuts to federal spending and green energy tax incentives.
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