LONDON - The bond vigilantes were stalking global debt markets on Thursday, keeping the dollar and stocks subdued too, ahead of a crucial vote in the United States on President Donald Trump's "big beautiful" tax bill.

Caution dominated in Europe after a lacklustre US 20-year bond sale on Wednesday reinforced a "Sell America" narrative already nagging on investors' minds after Moody's last week cut its triple-A credit rating for the United States.

Germany's long-term bond yields hit their highest in two-months as global yield curves steepened.

Britain's government borrowed more than expected in April, figures showed, while euro zone business activity unexpectedly slipped back into contraction territory.

It left stock markets in London, Paris, Milan and Frankfurt all down more than 0.5 percent. Safe-haven gold rose to a two-week peak while bitcoin jumped to an all-time high, partly as investors sought out alternatives to US assets.

The non-partisan Committee for a Responsible Federal Budget estimates that the US bill, which will extend Trump's signature 2017 tax cuts as well boost military and other spending, will increase the US debt pile by $3.8 trillion over the next decade.

UBS economist Paul Donovan said while the final details were still to be seen, "the broad impact is to push the US further along a rising debt path. Bond investors are less than happy".

The yields on 30-year Treasury bonds – a proxy for super long-term US government borrowing costs – reached 5.108 percent, its highest since October 2023 and the 20-year yield hit 5.126 percent, its highest since November that year.

The bond market in Japan has also been in focus given it has the highest debt-to-GDP ratio of any major economy. The 30-year JGB yield hovered at 3.155 percent, not far from the record high of 3.185 percent hit in the previous session.

Stocks in Asia also fell after Wall Street tumbled following the tepid debt auction. MSCI's broadest index of Asia-Pacific shares outside Japan ended 0.6 percent lower, while Japan's Nikkei fell 0.8 percent on a stronger yen.

Trade deal progress

Oil prices fell more than 1 percent following a report that OPEC+ is discussing a production increase for July, stoking concerns that any potential jump in global supply will exceed demand growth.

Brent futures fell $1.05, or 1.62 percent, to $63.86 a barrel in Europe, while US West Texas Intermediate crude dropped 97 cents, or 1.58 percent, to $60.60.

Modest progress to date on trade deals has also kept investors jittery.

Attention will also be on a Group of Seven meeting in Canada, where finance ministers put a positive spin on discussions to try to reach an agreement on a joint communique largely covering non-tariff issues.

Investors have also been scouring for any hints that currency markets could be part of trade negotiations. However, Thai and Japanese officials said currency markets were not part of their discussions.