SINGAPORE, May 22 (Reuters) - In a significant development for financial markets, longer-dated U.S. Treasury yields reached their highest level in 18 months on Thursday. This rise was accompanied by a decline in Asian stocks and the dollar, as concerns about a deteriorating fiscal outlook in the United States weighed heavily on investor sentiment.
The focus of investor attention remains on U.S. President Donald Trump's tax bill, which is slated for a vote in Congress this week. Analysts are apprehensive that the proposed legislation could add approximately $3.8 trillion to the already staggering $36 trillion U.S. debt burden. This has sparked a cautious atmosphere within the markets, especially after Moody's downgraded the U.S. credit rating last week, leading to a growing narrative of 'Sell America'. Consequently, the greenback has been hovering near its lowest point in two weeks against other major currencies.
Investor apprehensions extend beyond the immediate fiscal challenges. Many are exploring alternatives outside the United States, driven by the belief that the U.S. economy may not be insulated from a potential global recession, particularly one triggered by Trump's unpredictable trade policies. Vis Nayar, chief investment officer at Eastspring Investments in Singapore, noted, "We continue to have uncertainty and worries about growth and the ability of the U.S. government to raise more debt." He added that the current market conditions do not suggest a return to dollar strength but rather a trend towards diversification into emerging market countries.
This reluctance to invest in U.S. assets became evident on Wednesday when the U.S. Treasury Department experienced lackluster demand for the $16 billion sale of 20-year bonds, pushing bond yields higher. The yield on 30-year Treasury bonds remained above 5%, following a 1.5-year high earlier in Asian trading hours. Despite this, some analysts suggest that market sentiment has been buoyed by recent economic data, which indicates resilience amid trade uncertainties stemming from Trump's tariffs. However, this optimism could soon be tested with business activity surveys expected from Japan, the euro zone, and the U.S. later on Thursday.
Additionally, the ongoing negotiations concerning trade deals have kept investors on edge. Attention is also focused on an upcoming Group of Seven meeting in Canada, where finance ministers aim to project a positive outlook on discussions aimed at achieving a joint communique, primarily addressing non-tariff issues. Investors are keenly scanning for any indications that currency markets might be incorporated into these trade discussions, although the U.S. and Japan reached an agreement on Wednesday affirming that the current dollar-yen exchange rate accurately reflects economic fundamentals.
In other market movements, bitcoin continued its upward trajectory, rising for the fifth consecutive session to hit a record high of $110,636.58. This surge reflects the cryptocurrency’s recovery from the selloff triggered by trade tensions last month, with prices up by 1.5%. Meanwhile, oil prices eased on Thursday after a significant increase in the previous session, driven by unexpected builds in U.S. crude and fuel inventories, which raised concerns about demand. In contrast, gold prices edged up for the fourth straight session, bolstered by a softer dollar and persistent safe-haven demand.
Reporting by Johann M Cherian; Editing by Jamie Freed
