Wall Street struggles for direction as deficit worries and yield spike keep investors on edge

With fiscal risks rising and bond markets reacting sharply, investors are now bracing for heightened uncertainty in the weeks ahead, both in Washington and on Wall Street.

U.S. markets saw a muted session on Thursday, stabilising after a sharp midweek sell-off sparked by deepening concerns over the federal deficit and surging Treasury yields.

The Dow Jones Industrial Average dipped 32 points, or 0.2 percent, while the S&P 500 also closed slightly lower. The Nasdaq Composite, however, posted a modest recovery, ending the day up 0.5 percent.

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The caution came in the wake of a fiscal bill passed by the House of Representatives in a party-line vote early Thursday. The legislation, which includes broad tax cuts and increased military spending, is estimated by the Congressional Budget Office to add nearly $4 trillion to the U.S. deficit. The bill now moves to the Senate for further deliberation.

The market reaction was swift in the bond segment. Yields on long-duration Treasuries shot up, with the 30-year bond climbing to 5.1 percent — a level last seen in October 2023. The benchmark 10-year yield hovered just below 4.6 percent. The rise in yields, which serve as a key benchmark for consumer and business loans, has raised fresh concerns about tightening financial conditions.

Investors are also weighing the potential inflationary impact of recently implemented universal tariffs under the Trump administration, which could further pressure bond prices and stoke volatility in fixed-income markets.

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On Wednesday, the Dow tumbled more than 800 points while the S&P 500 dropped 1.6 percent. A weak response to a 20-year Treasury auction added to the market's unease, with analysts warning that diminished demand for government debt could push yields even higher if borrowing needs continue to escalate.

With fiscal risks rising and bond markets reacting sharply, investors are now bracing for heightened uncertainty in the weeks ahead, both in Washington and on Wall Street.

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