Bond market remains under pressure in the wake of Moody’s downgrade

The U.S. Treasury plans to auction 20-year bonds on Wednesday after Moody’s cut the U.S. credit rating to Aa1.

Tumult in global government debt since Moody’s downgraded the U.S. credit rating has investors on edge about a crucial auction of 20-year Treasury bonds on Wednesday.

The Treasury plans to auction $16 billion of 20-year bonds, with results due just after 1 p.m. Eastern. The offering will mark the first auction of longer-duration Treasury bonds since Moody’s on Friday became the third and final rating agency to strip the U.S. of its top Triple-A credit rating.

“Auctions are kind of must-see TV right now,” said Brian Quigley, a senior portfolio manager at Vanguard, on Tuesday. With the 20-year and 30-year Treasury yields now both approaching 5%, he expects the auction to be an important gauge of demand for longer-duration U.S. bonds.

The U.S. bond market has been hit by extremely volatile since President Trump accelerated — and then backed off — his global tariff fight. The 20-year Treasury yield was up 3 basis points to 4.99% on Tuesday, while the 30-year yield was up 4 basis points to 4.96%, according to FactSet. The 30-year yield briefly punched above 5% in early trade Monday, after plunging to 4.4% in early April on recession concerns.

Trump’s tariffs raised questions about the “exceptionalism” enjoyed by the dollar and U.S. Treasury securities in global markets for the past dozen years. Moody’s joined the conversation when it lowered the U.S. credit rated to Aa1 from AAA, pointing to the growing U.S. deficit and interest costs over the past decade.

Investors also have been focused on the proposed Republican tax bill, which looks poised to increase the U.S. deficit.

But higher bond yields haven’t been only a U.S. issue. Investors were monitoring upward pressure on longer-duration Japanese bonds after a weak 20-year bond auction. While foreign appetite for U.S. debt has improved since an early April swoon relating to tariffs, weakness remains in 7-year to 10-year Treasury securities, according to BNY iFlow data

“These actions are going to be the first auctions we’ve had in coupon supply since the Moody’s downgrade,” said Tom di Galoma, managing director at Mischler Financial Group, in a phone interview.

There also will be a $18 billion auction of 10-year TIPS on Thursday, followed by 2-year, 5-year and 7-year actions after Memorial Day.

Beyond that, di Galoma said he expects to see good appetite from life-insurance companies and state and local pension funds emerging for 20-year and 30-year auctions, if yields push above 5%.

“We will have to see how that plays out — and that’s big worry.”

Stocks were lower Tuesday as bond yields rose, with the major equity gauges giving back earlier gains on Monday.