As a result of poor demand for 20-year Government Bonds auctions in the United States, major indices on the New York Stock Exchange plummeted. The decline in demand for Government Bonds raised concerns about the fiscal soundness of the United States, causing shock throughout the market.
On the 21st (local time), the Dow Jones Industrial Average closed down 816.80 points (1.91%) at 41,860.44 on the New York Stock Exchange (NYSE). The Standard & Poor's (S&P) 500 index fell 95.85 points (1.61%) to 5,844.61, while the Nasdaq Composite index recorded a drop of 270.07 points (1.41%) to 18,872.64.
The 20-year Government Bonds auction held at 1 p.m. that day acted as a catalyst for the decline in the market. The auction, conducted for an amount of $16 billion, saw the issuance interest rate set at 5.047%. This was an increase of 23.7 basis points compared to the previous month's auction, the highest since October of last year. It was also a level slightly above the market's pre-issue (When-Issued) rates by 1.2 basis points.
This auction was the first coupon Government Bonds auction held after Moody's downgraded the United States' credit rating. Wall Street was closely watching how much the impact of the downgrade would be reflected.
The market interpreted that the surge in Government Bonds rates could act as a burden on the stock market. Peter Buchva, Chief Investment Officer of Blikri Financial Group, noted, “The 20-year bonds are typically overlooked as they lack liquidity, but with the market becoming sensitive to movements in Government Bonds rates, this auction was bound to draw attention.”
Peter Cadillo, Chief Economist at Spartal Capital Securities, stated, “When Government Bonds rates surge like this, it can have a significant adverse effect on the stock market,” adding, “There are still political risks such as tax cut policies and budget conflicts.” Brian Mulberry, a portfolio manager at J.P. Morgan Asset Management, assessed, “The issue is growth and revenue sources. There is great uncertainty regarding how to manage the liabilities incurred by the government.”
In fact, on that day, the 30-year Government Bonds rates also rose above the 5% mark due to concerns over the tax cut bill.
By sector, all sectors fell except for communications services. The financial, healthcare, and real estate sectors recorded declines of more than 2%. Among the large technology stocks known as the 'Magnificent 7', all except for Alphabet dropped. Excluding Meta, most declines were around 2%. Conversely, Google introduced a new Google Glass equipped with AI technology, causing its stock price to rise nearly 3%.
By individual stock, UnitedHealth Group fell 6% as a result of HSBC's lowered target price, and Target dropped more than 5% due to disappointing first-quarter results. Palo Alto Networks saw its stock drop 7% as its gross margin failed to meet expectations. Nike decreased by 4% on news of a potential price increase for high-end sneakers, while Phillips 66 plummeted 7% following the activist fund Elliott's attempt to gain a seat on its board.
Andy Jassy, CEO of Amazon, noted at the annual shareholders' meeting that consumer demand is not declining, regardless of tariff policies.
According to the Federal Reserve Watch Tool at the Chicago Mercantile Exchange (CME), the probability of the federal funds rate being held steady in July is 71.2%, maintaining the same level as the previous day. The volatility index (VIX) at the Chicago Board Options Exchange (CBOE) recorded an increase of 2.78 points (15.37%) to 20.87.