US Credit Rating Cut Triggers Surge In Treasury Yields: 7 ETFs Experience Wild Swings

U.S. Treasury yields experienced a significant surge on Wednesday, influenced by a combination of factors including elevated issuance plans and Fitch’s downgrade of the United States’ sovereign credit rating.

The 10-year Treasury note briefly reached a yield of 4.1%, while the yield on the longer-dated 30-year note increased by 7 basis points to 4.16%, marking their highest levels since Nov. 10, 2022.

Chart: Treasury Yields Jump To Highest In 9 Months

Why Are U.S. Treasury Yields Rising?

• Fitch Ratings downgraded the United States’ long-term foreign-currency issuer default rating from AAA to AA+ on Tuesday. The downgrade was attributed to concerns over the expected fiscal deterioration over the next three years, the growing general government debt burden, and governance erosion compared to other peers. The agency also pointed out the impact of repeated debt-limit political standoffs and last-minute resolutions, which have diminished market confidence in the country’s fiscal management.

• The Treasury Department announced on Wednesday its plan to issue $103 billion in its quarterly refund next week, which is $7 billion higher than the previous quarter and above market expectations. The issuance includes offerings of $42 billion in three-year notes, $38 billion in 10-year notes, and $23 billion in 30-year bonds, according to the Financial Times.

• "The timing of the downgrade is a bit weird, but the fiscal situation in the U.S. is concerning," said Brandywine Global Investment Management Portfolio Manager Tracy Chen, cited by Bloomberg. According to the expert, this situation may lead to an increase in term premiums and a steepening of the yield curve.

Heightened Volatility Witnessed In 7 ETFs Wednesday

1. iShares 20+ Year Treasury Bond ETF TLT: This ETF, investing in Treasury securities with remaining maturities of at least 20 years, declined 1% on Wednesday, reaching lows not seen since early November 2022.
   
2. ProShares UltraPro QQQ TQQQ: This leveraged ETF, tracking 3 times the daily performance of the Nasdaq 100 index, experienced a 6.8% drop for the session.
   
3. VanEck Semiconductors ETF SMH: This ETF, investing in an ample selection of semiconductor stocks, fell 3.7%, recording its worst session of the year.
   
4. Invesco Solar ETF TAN: This ETF, investing in companies involved in renewable energy, tumbled 5.7%, on track for its largest loss since mid-June 2022.
   
5. ProShares Trust Ultra VIX Short Term Futures ETF UVXY: This ETF, which tracks 1.5 times the daily performance of the S&P 500 VIX Short-Term Futures Index, skyrocketed 17%.
   
6. Direxion Daily Gold Miners Index Bull 2X Shares NUGT: This ETF, tracking 2 times the daily performance of the NYSE Arca Gold Miners Index, fell 6.2% on Wednesday, after declining 7.3% on Tuesday.
   
7. Global X Robotics & Artificial Intelligence ETF BOTZ: This ETF, investing in AI-related stocks, dropped 3.6% on Wednesday, marking its largest daily decrease since mid-December 2022.

This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Photo: Shutterstock.