Bond investors reacted sharply on Thursday as the House approved a multitrillion-dollar spending and tax-cut bill proposed by President Trump. The yield on U.S. bonds maturing in 10 years rose to 4.623%, the highest since February, while the 30-year Treasury note’s yield hit 5.14%, levels not seen for 18 years. Concerns are mounting over the government’s growing debts and deficits. The Trump administration argues that the spending bill will spur economic growth and increase federal revenues, but independent analysts, including the Congressional Budget Office, caution that these predictions may be overly optimistic and suggest the bill will maintain an unsustainable fiscal trajectory.
This surge in borrowing costs followed a disappointing Treasurys auction on Wednesday and a recent downgrade of U.S. debt by Moody’s, which cited a worsening fiscal landscape. Historically, the U.S. financed large entitlement programs like Social Security and Medicare through low-interest borrowing, particularly advantageous during the slow recovery from the 2008-09 crisis. However, in the wake of the COVID-19 pandemic and increased government spending, rising inflation has led to higher borrowing rates for both the government and consumers.
As a result, mortgage rates are climbing back above 7%, and the Federal Reserve has been compelled to raise interest rates, making credit cards and auto loans more expensive. Stocks opened flat amidst this volatility, while Bitcoin held steady near an all-time high of over $111,000. The overall economic outlook remains fraught with uncertainty as policymakers grapple with the implications of rising debt levels.
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