Asian Stocks Drop, Treasuries Tumble as U.S. Fiscal Concerns Deepen

Asian equities took a sharp hit on Thursday, while U.S. Treasury markets remained under intense pressure following a wave of losses on Wall Street. Investor anxiety is mounting over the state of the U.S. economy, as President Donald Trump pushes for fresh tax cuts that critics say could further inflate the ballooning federal deficit.

The sell-off came on the heels of a weak auction of 20-year U.S. government bonds, sending a clear warning that the bond market is growing uneasy about America’s long-term fiscal health. The tepid demand for Treasuries came just days after Moody’s downgraded the U.S.’s coveted top-tier credit rating, adding further fuel to market unease.

This setback has derailed the recent upward momentum seen in global markets, which had been buoyed by easing trade tensions between the U.S. and China, along with signs of diplomatic progress on other trade fronts.

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Now, with the U.S. budget deficit once again in the spotlight, investors are demanding higher yields to hold government debt — a signal of fading confidence in Washington’s ability to manage its finances. Yields on 30-year Treasuries spiked to their highest level since late 2023.

Wall Street bore the brunt of the sell-off, with all three major U.S. indices closing significantly lower. The pressure intensified after Trump’s administration advanced a new tax package currently making its way through Congress.

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The proposal seeks to extend tax cuts from his first term, offset in part by deep government spending cuts. However, many analysts believe the cuts will fall short of balancing the books, potentially pushing the deficit to unsustainable levels.

“The proposed tax cuts are raising red flags among economists about the U.S.’s fiscal path, and the bond market is clearly reflecting those concerns,” said Tapas Strickland of National Australia Bank.

Echoing that sentiment, former Treasury Secretary Steven Mnuchin warned that the rising budget deficit poses a more serious risk than the trade deficit, advocating for more aggressive spending reductions.

Asian stock markets followed Wall Street’s lead into negative territory, with indexes in Tokyo, Hong Kong, Shanghai, Sydney, Seoul, Taipei, Wellington, and Manila all posting losses.

The U.S. dollar also slipped amid growing fears over the economy’s direction, while investors shifted toward traditional safe-haven assets like gold, which hovered around $3,340 an ounce.

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Amid this market turbulence, fears of a broader equity correction are rising. “Higher long-term yields are making it difficult to justify lofty equity valuations,” noted Stephen Innes of SPI Asset Management. “Tech and growth stocks, already stretched, are now facing a hard revaluation as interest rates climb.”

Still, not all sectors suffered. Bitcoin reached a new all-time high of $110,707, buoyed by signs of bipartisan support in Congress for cryptocurrency regulation. The introduction of legislation focused on stablecoins — digital assets pegged to the U.S. dollar — has renewed optimism about long-awaited regulatory clarity for the digital asset sector.

Meanwhile, oil prices extended their losses after the U.S. Energy Information Administration reported a surprise increase in stockpiles last week, raising further concerns about global demand. As markets digest the implications of rising debt, volatile equities, and a shifting regulatory landscape, investors are bracing for a potentially turbulent summer.