By Caroline Valetkevitch
NEW YORK (Reuters) -Major stock indexes and the dollar fell on Wednesday as investors worried about a deteriorating U.S. fiscal outlook and Treasury yields climbed following a poorly received sale of 20-year U.S. bonds.
The U.S. Treasury Department saw soft demand for the $16 billion sale of 20-year bonds, which reinforced the view that investors are shying away from U.S. assets.
The three major U.S. stock indexes ended down more than 1% each. The dollar also fell broadly.
At the same time, concerns continued about U.S. President Donald Trump’s efforts to push through a tax-cutting bill that could worsen the debt load by $3 trillion to $5 trillion.
Investor sentiment has been fragile since Moody’s late last Friday downgraded the United States’ credit rating, stoking concerns about the country’s $36 trillion debt pile.
Republicans are still divided over the details of the tax legislation, which would extend and add to Trump’s 2017 tax cuts.
There are also concerns about a lack of progress on U.S. trade talks with trading partners pressing Washington to ease or eliminate its tariffs.
"There’s no doubt the (U.S.) deficit has grown larger," said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York. "Is there a chance that Trump over his term will bring that down? I would be surprised."
"What we’re really in is this period that’s sort of a waiting game on tariffs," he added. "Negotiations are going on ... we don’t really know if progress is being made."
The Dow Jones Industrial Average fell 816.80 points, or 1.91%, to 41,860.44, the S&P 500 fell 95.85 points, or 1.61%, to 5,844.61 and the Nasdaq Composite fell 270.07 points, or 1.41%, to 18,872.64.
MSCI’s gauge of stocks across the globe fell 7.67 points, or 0.87%, to 873.95.
European stocks dipped, with British sportswear retailer JD Sports declining. The pan-European STOXX 600 index eased 0.04%.
After the Treasury auction, yields on the 20-year debt rose to 5.127%, the highest since November 2023. The 30-year bond yield rose 11.5 basis points to 5.0817% from 4.967% late on Tuesday.
In the foreign exchange market, the euro was up 0.4% against the dollar to $1.1334, after earlier climbing to a two-week high.
The pound hit its highest level since February 2022 after data showed UK consumer inflation flared hotter in April than most economists expected.
Also, the yen strengthened against the dollar, which fell 0.6% to 143.62 yen, extending gains derived in part from a steep rise this week in domestic bond yields.
Yields on 30-year Japanese government bonds surged to new records on Wednesday in the wake of a poor auction result that raised doubts over coming debt sales in the weeks ahead.
Bitcoin, meanwhile, hit a record high, eclipsing its previous high from January. It was last little changed at $108,261.87.
Oil prices settled lower, after Oman’s foreign minister said a new round of nuclear talks between Iran and the U.S. would take place later this week. Also, the U.S. government released bearish data on crude and fuel supplies.
Prices had gained earlier in the session on a CNN report on Tuesday that U.S. intelligence suggests Israel is preparing to strike Iranian nuclear facilities. Brent futures fell 47 cents, or 0.7%, to settle at $64.91 a barrel. U.S. West Texas Intermediate crude fell 46 cents, or 0.7%, to $61.57.
Spot gold was up 0.7% at $3,312.77 an ounce following the weaker dollar.
Investors were also monitoring the Group of Seven finance ministers’ meetings under way in Canada.