Bond yields move higher as stocks retreat

Stocks started on the back foot this week after credit rating agency Moody’s downgraded US government debt amid worries over persistent budget deficits and rising debt levels.

Stocks came under further pressure on Wednesday (21 May) following weak investor demand in a 20-year bond auction which saw yields settling at 5.04% compared with 4.83% in February.

Further out the yield curve, 30-year US treasury yields moved through 5% to reach their highest level since 2007, partly in response to the successful passage of President Trump’s ‘big, beautiful tax bill’ through the lower house.

The multi-billion-dollar package is projected to add trillions of dollars to America’s roughly $37 trillion of national debt. Concerns over US debt saw the dollar fall 1% this week against a basket of currencies.

Fannie Mae and Freddie Mac

It was a good week for US mortgage finance firms Federal National Mortgage Association and Federal Home Loan Mortgage Corp, colloquially known as ‘Fannie Mae’ and ‘Freddie Mac’.

Shares in both firms soared more than 40% after President Trump said in a social media post he was giving "very serious consideration" to taking them public.

‘Fannie Mae and Freddie Mac are doing very well, throwing off a lot of CASH, and the time would seem to be right,’ said Trump, added he would speak with Treasury Secretary Bessent, Commerce Secretary Howard Lutnick and Federal Housing finance chief William Pulte.

Both firms were created by Congress to grow the domestic lending market by buying home loans from private lenders and repackaging them as mortgage-backed securities.

The companies operate as for-profit organisations and their shares are traded on the OTC (over-the-counter) markets.

In 2008, both firms suffered huge losses when the US housing market collapsed and were placed under US government control.

Palo Alto Networks

The cybersecurity giant is investing today for future growth, a sensible idea but one that comes with costs. Shares of Palo Alto Networks fell around 7% after the company reported better-than-expected earnings in the third fiscal quarter but disappointed some investors over its margins.

The company has been offering incentives including deferred payments for customers to consolidate their security spending from multiple security vendors onto its own unified Cortex platform.

With some success, it must be said, delivering more than 90 net new consolidations during the quarter, including three contracts worth a combined $168 million. Palo Alto now has 1,250 platform deals among its top 5,000 customers.

‘To truly capitalise on AI’s potential, enterprises need modern, cloud-delivered platforms that can ingest vast amounts of data and operate in real-time at scale’, said chief executive Nikesh Arora. ‘We’ve seen customers who were previously delaying their cloud migrations are now accelerating their investment.’

Palo Alto now estimates revenue of $9.17 billion to $9.19 billion and non-GAAP net income of $3.26 to $3.28 per share for fiscal year 2025, to end July, implying negative growth this year as the company invests to grow.

Target

Shares in Target dropped 5% to $93 after first-quarter results (21 May) missed the mark and the Minneapolis-based big box retailer downgraded its full-year sales and earnings guidance due to tariff and consumer uncertainties.

While the clothing-to-home furnishings seller’s digital growth proved robust in the quarter ended 3 May 2025, a 3.8% drop in comparable sales combined with higher markdowns put a dent in profitability.

During the quarter ended 3 May, Brian Cornell-bossed Target also encountered a backlash associated with changing its DEI policy.

A huge amount of the value-focused retailer’s inventory comes from China and if prices rise, shoppers will likely vote with their wallets.

Unlike larger rival Walmart, however, Target didn’t suggest it would have to pass on increased costs and the hard-pressed retailer said it was making a huge effort to source products from other parts of the world.