Why the bond market is so worried about the ‘Big, Beautiful Bill’

Bond

Summary:

Weak demand for U.S. bonds signals investor concerns over Trump's tax bill and rising debt. Higher yields raise borrowing costs, threaten social programs, and risk slowing the economy amid global competition.

The decidedly unsexy bond market is usually pretty quiet. But when they want to, bond investors can send a loud, clear message to Washington. They did just that Wednesday and Thursday.

The 20-year bond auction conducted by the US Treasury on Wednesday afternoon was unusually weak: Demand for the bonds was the lowest since February, according to the Treasury Department. Investors who bought the bonds sought a higher-than-expected yield — effectively saying they wanted to be paid more for taking on the risk of lending to Uncle Sam.

That sent a big warning to President Donald Trump and congressional Republicans. The poor demand means that investors who lend money to the United States think the Trump agenda — in particular, the “Big, Beautiful” tax cut bill — has made America an unacceptably risky investment. They are not going to keep funding the government’s coffers unless they get paid more for it.

Long-term Treasuries fell further Thursday; and yields, which trade in opposite direction to prices, continued to surge. The rate on the 10-year Treasury rose above 4.61%, and the 30-year eclipsed 5.14% — its highest level since October 2023.

The stock market has started to worry a bit about the news. The Dow was flat Thursday after tumbling more than 800 points Wednesday. The broader S&P 500 fell 0.1%, and the Nasdaq gained 0.1%. Wall Street’s problems could soon be felt on Main Street.

The bond market is already on edge. Bond prices have been falling in recent weeks, and yields have been rising for several reasons. Recession fears have been somewhat allayed after the Trump administration lowered tariffs on China significantly last week. Yet inflation remains a big concern as companies reporting earnings in recent days, including behemoths like Walmart, said they’ll be forced to raise prices because of tariffs.

Yields have also been rising all over the world, creating competition for US bonds. And the “Sell America” trade — in which US stocks, dollar and bonds have become less attractive — has reignited over growing debt concerns because of the tax cut bill and Friday’s US credit rating downgrade from Moody’s. That raised fears that foreign investors may not want to invest in US Treasuries in the future.

“The most troubling part of the market reaction is that the dollar is weakening at the same time,” said George Saravelos, head of FX research at Deutsche Bank, in a note to investors. “To us this is a clear signal of a foreign buyer’s strike on US assets and the associated US fiscal risks we have been warning for some time. At the core of the problem is that foreign investors are simply no longer willing to finance US twin deficits at current level of prices.”

The “yippy” bond market, as Trump previously called it, is what concerned Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick enough to convince Trump to reverse course shortly after the “Liberation Day” trade announcement on April 2, CNN reported. That’s why he temporarily rescinded his “reciprocal” tariffs on dozens of countries, some as high as 50%.

The question now: Will the bond market freak out Republicans again — enough to change the “Big, Beautiful Bill” as it moves through the Senate?

Debt hawks in the Republican party have been complaining about the Congressional Budget Office’s report that said the bill would add nearly $4 trillion to America’s $36 trillion in debt. That’s not just a number: America needs to pay interest on all that borrowing. This fiscal year alone, America has already spent $684 billion to maintain its debt, amounting to 16% of all federal spending — just on interest.

But Bessent, the steward of America’s debt and a debt hawk himself, has pooh-poohed higher rates and the Moody’s downgrade. He said Sunday on CNN that the economic benefits of the tax cuts will outweigh the debt problems it creates. And on NBC’s “Meet the Press” on Sunday he dismissed the credit rating downgrade, saying, “Who cares? Qatar doesn’t, Saudi doesn’t, UAE doesn’t,” referring to investment agreements Trump secured during his Middle East trip last week.

But the Treasury is about to fill its coffers again once Congress raises the debt ceiling, allowing the government to start borrowing again. If bond investors demand higher yields, that will make financing America’s debt significantly more expensive, putting at risk future safety net programs — one reason why Republicans are talking about big cuts to Medicaid.

Higher bond rates are also going to make life more expensive for everyday Americans. Many loans pegged to Treasury yields, such as mortgages, credit card rates and auto loans, are rising as bond yields grow. That could slow down the economy, taking some of the power out of the tax cut bill, which is expected to help juice the economy.

“Ultimately, there are only two ‘solutions’ to this problem,” said Saravelos. “Either the US has to sharply revise the current reconciliation bill currently sitting in Congress to result in credibly tighter fiscal policy; or, the non-dollar value of US debt has to decline materially until it becomes cheap enough for foreign investors to return. Brace for more volatility.”

Source: cnn

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Owen Li

Economic

Stocks

The S&P 500 struggled for direction on Thursday after the U.S. House of Representatives passed President Donald Trump's tax and spending bill, expected to burden the federal government with trillions of dollars in extra debt, by a razor-thin margin.

If what Trump has described as a "big, beautiful bill" becomes law, it is expected to add about $3.8 trillion to the country's $36.2 trillion debt in the next decade, according to the nonpartisan Congressional Budget Office.

The bill now faces a test in the Republican-controlled Senate and will fulfill much of Trump's populist agenda if passed, delivering new tax breaks on tips and car loans and boosting U.S. military expenditure.

"It seems pretty clear that, in its present form, the legislation is certainly not going to improve the budget deficit and could make it substantially worse," said Steve Sosnick, chief market analyst at Interactive Brokers.

Longer-dated Treasury yields hovered near multi-month highs, with those on the 10-year benchmark at 4.58% and the 30-year Treasury yield at a new 19-month high.

At 11:46 a.m. ET, the Dow Jones Industrial Average (.DJI), opens new tab rose 52.01 points, or 0.12%, to 41,912.45, the S&P 500 (.SPX), opens new tab gained 8.17 points, or 0.14%, to 5,852.78, and the Nasdaq Composite (.IXIC), opens new tab added 120.56 points, or 0.64%, to 18,993.21.

Eight of the 11 S&P sub-sectors traded lower, with utilities (.SPLRCU), opens new tab and energy (.SPNY), opens new tab among top decliners, down more than 2% and 1% respectively.

Most megacap and growth stocks inched up. Alphabet(GOOGL.O), opens new tab led gains with a 3.3% rise, touching a nearly three-month high.

Shares of solar energy companies including First Solar (FSLR.O), opens new tab fell more than 6% as Trump's tax bill is expected to end a number of green-energy subsidies.

Snowflake (SNOW.N), opens new tab jumped more than 12% after the cloud computing firm raised its fiscal-year 2026 product revenue forecast.

All three main stock indexes had witnessed their biggest single-day percentage drops in a month on Wednesday as Treasury yields spiked on worries about mounting U.S. debt.

U.S. stocks have had a solid month so far, with the S&P 500 climbing more than 15% from its April lows, when Trump's reciprocal tariffs roiled global markets.

A pause in tariffs, a temporary U.S.-China trade truce and tame inflation data have pushed equities higher, although the S&P 500 is still about 3% off record highs.

Fed Governor Christopher Waller said in an interview to Fox Business that central bank rate cuts would be on the menu if the Trump administration's tariff agenda settles on the lower side of the ledger.

On the data front, U.S. business activity picked up in May, while separate data showed jobless claims dropped last week, suggesting that the economy maintained a steady pace of employment growth.

Traders currently see at least two 25-basis-point rate cuts by the end of the year, according to data compiled by LSEG.

Declining issues outnumbered advancers by a 1.95-to-1 ratio on the NYSE and by a 1.05-to-1 ratio on the Nasdaq.

The S&P 500 posted one new 52-week high and nine new lows, while the Nasdaq Composite recorded 34 new highs and 83 new lows.

Source: Reuters

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Adam

Economic

The House budget bill that narrowly passed in an early morning vote on Thursday would effectively put the brakes on a clean energy production boom in the United States spurred by tax credits enacted in 2022.

The bill to carry out President Donald Trump's "one big beautiful bill" plan that would further his tax cuts and boost spending on the military and border enforcement would kill Inflation Reduction Act tax credits for clean energy years earlier than initially planned in an earlier draft, rendering them unusable for most projects.

The changes made from the House tax-writing committee's proposal last week would advance by three years an end-date for the use of technology-neutral clean electricity tax credits for wind, solar and battery storage projects to 2028 and require projects to begin construction within 60 days of the final bill's passage, according to a bill summary.

The House bill also eliminates the "transferability" of tax credits that enabled developers to sell their tax credits and use the funds to finance their projects' construction, a feature that made it easier to get projects up and running except for some nuclear energy projects.

It also strengthened restrictions using tax credits for any project associated with "foreign entities of concern," which includes companies, subsidiaries and materials linked to China. China dominates all aspects of the clean energy supply chain and the restrictions effectively kill most projects, which rely on many components sourced from there.

The budget proposal passed with the support of over two dozen Republican representatives who had urged House leaders to preserve key IRA tax credit provisions because their districts have benefited from clean energy and manufacturing investments.

Advocates for the clean energy industry blasted the bill on Thursday, saying it will destroy billions in investments around the country and complaining that House leadership had initially promised to carefully reform the credits, not kill them.

"If enacted as written, this bill will weaken our power system and send shockwaves throughout the U.S. economy by raising electricity prices, killing tens of thousands of jobs, and ceding energy dominance to China," said Heather O'Neill, president of clean energy lobby group Advanced Energy United.

"This isn't a scalpel, it's a meat cleaver, and it will hurt us all."

The American Petroleum Institute praised the bill for "preserving competitive tax policies" as well as opening up more oil lease sales and eliminating Biden administration policies such as its fee on methane emissions for the oil and gas industry.

Analysts at JP Morgan described the IRA tax credit changes as "unfavorable" in an analysis, and said the bill contained "significant negative changes" from last week's proposal that it hopes the Senate can reverse.

Energy analysts at the Rhodium Group said its preliminary review of the bill found the changes amount "to the impact of a full repeal of the energy tax credits" and could raise household energy costs by 7%.

Clean energy stocks took a hit on Thursday.

Sunrun shares fell as much as 33%, Complete Solaria fell nearly 22% while Enphase Energy, Maxeon Solar and SolarEdge Technologies dipped between 10% and 15.6%.

Shares of JinkoSolar fell 2.3%, while First Solar and Canadian Solar dropped 6.5% and 10%, respectively.

source : Reuters

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Gerik

Economic

Treasury Market Remains Resilient

In response to surging long-term bond yields and recent credit rating downgrades, the IMF clarified on Thursday that it does not currently see signs of financial instability in the U.S. bond market. According to Julie Kozack, Director of Communications at the IMF, “market functioning, including in the U.S. Treasury market, has so far been orderly,” despite recent volatility.

Yields on long-term Treasuries surged this week after Moody’s cut the U.S. credit rating and as lawmakers advanced President Donald Trump’s expansive tax-and-spend legislation. The proposed bill, recently passed by a narrow vote in the House of Representatives, is expected to add $3.8 trillion to the current $36.2 trillion U.S. debt over the next decade, according to estimates from the Congressional Budget Office (CBO).

IMF Urges Caution and Awaits Full Fiscal Picture

While the IMF has not yet assessed the full impact of the legislation, Kozack indicated that the Fund will evaluate its economic consequences once the bill clears the Senate and is enacted. The Fund’s concern reflects growing international scrutiny over the sustainability of U.S. debt, especially as higher borrowing costs increasingly burden federal finances.

On a more positive note, Kozack acknowledged that the recent temporary trade breakthrough between the United States and China—marked by a 90-day tariff pause—offers a potential boost to global economic growth. However, she emphasized that the world economy remains mired in uncertainty.

“The reduction in tariffs and the easing of tensions does provide some upside risk to our global growth forecast,” she said. “All of this said, of course, the global outlook in general does remain one of high uncertainty.”

Markets Caught Between Two Fiscal Signals

The IMF’s remarks reflect a delicate balance: affirming U.S. Treasury liquidity while warning that sustained fiscal expansion—if not paired with structural reforms or revenue offsets—could destabilize long-term investor confidence. While bond markets have not yet shown signs of dislocation, the yield curve’s reaction to ongoing debt accumulation signals investor caution.

Should the proposed U.S. tax legislation pass into law unchanged, markets will likely recalibrate their expectations on inflation, interest rates, and fiscal credibility—key variables the IMF will continue to monitor closely.

Source: Reuters

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Adam

Economic

Bond vigilantes continued to stalk global debt markets on Thursday, also keeping the dollar and stocks subdued, as the U.S. House of Representatives passed President Donald Trump's "big beautiful" tax bill by a single vote.

Wall Street looked set to open fractionally higher having tumbled on Wednesday after the previous day's limp U.S. and Japanese long-term debt sales had highlighted the unease about rising government debt burdens.

This reinforced a "Sell America" narrative at the front of investors minds after Moody's last week became the last of the major credit rating agencies to strip the U.S. of its coveted triple-A status.

Long-term 20- and 30-year U.S. Treasury yields were shuffling higher again as were those in Europe, where benchmark German 20-year yields reached 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.

Stock markets in London, Paris, Milan and Frankfurt were all down between 0.75% and 1% EU.. The dollar was at its weakest against the Japanese yen in two weeks, while bitcoin set an all-time high, partly as investors sought out alternatives to U.S. assets. EU.

The non-partisan Committee for a Responsible Federal Budget estimates that the U.S. bill, which will extend Trump's signature 2017 tax cuts as well as boost military and other spending, will increase the U.S.'s $36 trillion debt pile by $3.8 trillion over the next decade.

"It should be good news that fiscal stimulus is coming given that markets have been worried about recession risk, but there is also the concern about fiscal sustainability," State Street Global Markets' Michael Metcalfe said.

"I think the dollar is the bellwether to watch here. If it isn't reacting to higher yields, it shows that confidence in U.S. policymaking has perhaps been dented."

The yields on 30-year Treasury bonds - a proxy for super long-term U.S. government borrowing costs - reached 5.13%, their highest since October 2023 and the 20-year yield hit 5.14%, its highest since November that year.

The bond market in Japan has also been in focus given that it has the highest debt-to-GDP ratio of any major economy. The 30-year JGB yield hovered at 3.169%, not far from the record high of 3.185% hit in the previous session.

Stocks in Asia also fell after Wall Street's Wednesday tumble. MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) , opens new tab ended 0.6% lower, while Japan's Nikkei (.N225) , opens new tab fell 0.8% on the stronger yen.

"The view is that, with this bill, Trump is playing with fire with the deficit," said Francesco Pesole, FX strategist at ING.

"It's causing a coordinated sell-off in equities and Treasuries, and the 'Sell America' theme is obviously quite negative for the dollar," Pesole added.

Bond selloff rolls on as US House passes Trump's 'big beautiful' tax bill_1

Analysts are struggling to explain this week's sudden sell-off in long-dated government debt as tariff uncertainty muddles inflation forecasts.

TRADE DEAL PROGRESS

Oil prices were down more than 1.5% following a report that countries in the OPEC+ group are discussing another sharp production increase for July.

Brent futures fell $1, or 1.5%, to $63.98 a barrel in Europe, while U.S. West Texas Intermediate crude dropped 97 cents, or 1.58%, to $60.60.

Modest progress to date on trade deals has also made investors nervous.

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

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

Bitcoin had no such worries. It climbed as high as $111,862.98, a new record peak and a 3.3% increase from Wednesday's close.

It comes amid hopes that soon-to-be-finalised U.S. stablecoin regulation will continue to bring cryptoassets into the mainstream.

"My official forecasts for Bitcoin are 120k end Q2, 200k end 2025 and 500k end 2028," Standard Chartered's Geoff Kendrick said.

source : reuters

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Daniel Carter

Political

Economic

Carney released a letter spelling out seven major priorities for his new cabinet, one of which is “spending less on government operations” to free up money for other priorities. The prime minister promised during the recent election campaign to rebuild Canada's military and use the financial backing of the government to accelerate home construction, among other spending ideas.

The government won't release a budget until the autumn months; usually it does so in March or April. That will allow more time to assess the economic effects of the trade war and figure out what new defense spending is needed, Carney told reporters Tuesday evening. The last new federal budget was in April 2024.

The Canadian government's total program expenses are expected to reach C$500 billion ($360 billion) this fiscal year, excluding debt charges, up from about C$260 billion in 2016. Carney has said operating expenses are growing too quickly and must be reined in, but has given few details on how he believes AI can be deployed in government operations.

He did, however, appoint Canada's first minister of artificial intelligence — Evan Solomon, a former television broadcaster — as well as a minister of government transformation, Quebec lawmaker Joel Lightbound.

Economists are forecasting a budget deficit of 1.7% of gross domestic product this year, according to data compiled by Bloomberg. But the number is likely to be higher because of sluggish economic growth and the election pledges that Carney made. The Liberal Party's platform projected a deficit of 2% of GDP for the fiscal year that ends next March.

“The delay of the budget is a bit concerning, as it raises questions about transparency and contributes to greater economic and fiscal uncertainty,” Josh Grundleger, a director at Fitch Ratings, said in an emailed statement.

Parliament will reopen next week, with King Charles III set to deliver what's known as the throne speech on Tuesday, laying out the government's priorities.

“It would be helpful for markets to have a clear sense of which aspects of the party platform will be implemented and what the ultimate impact will be on deficits, debt and the taxpayer,” said Fitch's Grundleger.

Canada's debt is rated AAA by S&P Global Ratings and Aaa by Moody's, the highest ratings available from those agencies. Fitch downgraded the country to AA+ in June 2020.

“We hope to get more clarity on near-term priorities when the speech from the throne is introduced,” Travis Shaw, the lead analyst for Canada at Morningstar DBRS, said in an emailed statement.

Jennifer Love, an associate director at S&P Global Ratings, said Canada's economic growth will remain “constrained” because of the tariff war launched by the US, its largest trading partner. However, “we continue to believe that Canada's credit strength will persist even with lower growth and trade uncertainties,” she said.

Source: Bloomberg Europe

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Adam

Cryptocurrency

All crypto boats rose again on Thursday, with bitcoin notching fresh all-time highs as bullish momentum swept through the broader crypto market.

The world’s largest cryptocurrency climbed more than 4% to $111,889 on trading platforms like Coinbase, before easing slightly to $111,400 by publication time, according to The Block's price page.

Altcoins rallied alongside, with the GMCI 30 Index — which tracks the top 30 cryptocurrencies by market capitalization — posting gains as well.

The price momentum has catapulted demand for global crypto options. Bitcoin BTC +1.85% options open interest (OI) reached a new all-time high above $45.8 billion, accounting for nearly 84% of the total digital asset options market, per CoinGlass data. Meanwhile, open interest in ETH options soared to over $8 billion.

Total options OI for bitcoin and ether grew to over $53.8 billion in notional value, its highest point since December 2024.

All drivers in full gear

Geoffrey Kendrick, Standard Chartered's global head of digital assets research, said that previously reported market stimulants moved in unison to fuel BTC's rally.

"With Bitcoin printing in a predicted all-time high, it is time to take stock and see which of our predicted drivers is working. Short answer – everything is working," Kendrick wrote in a May 22 report shared with The Block.

Earlier this week, Kendrick reaffirmed his $500,000 BTC price target expected during President Donald Trump's current tenure. To back the thesis, Standard Chartered's expert highlighted quarterly 13F data from the U.S. Securities and Exchange Commission (SEC), which showed sovereign nations and institutions increasing exposure to bitcoin via proxy assets like Strategy's MSTR. The analyst said this trend has likely continued into the second quarter of 2025.

In addition, capital has rotated from gold funds to bitcoin products since the former's April 22 peak. Gold exchange-traded products shed over $3.6 billion while BTC ETFs attracted over $7.5 billion in those five weeks, Kendrick noted. Hedge fund shorts rose only by $1 billion in that time, suggesting that net long positions comprised the lion's share of BTC ETF flows.

Kendrick also said bitcoin remains closely correlated with the U.S. Treasury term premium. Mounting risks in the Treasury market, both domestic and international, are adding to bitcoin’s appeal, he argued.

"My official forecasts for Bitcoin are 120k end Q2, 200k end 2025, and 500k end 2028. All are well in hand," he said.

Analysts affirm 'buy in May and go away' theme as bitcoin hits $111,889 amid record options demand_1

Caution amid growing euphoria

Despite the bullish sentiment, some analysts warned of potential volatility.

Dr. Kirill Kretov, senior automation expert at CoinPanel, advised caution amid rising open interest and thin market liquidity.

“Think of it like stretching a rubber band: when OI is high and liquidity is low, the market is tightly wound—small catalysts can cause big moves,” Kretov said via Telegram. “Paired with the liquidity withdrawal trend I’ve tracked since November 2024, this surge in OI suggests that we are entering a highly sensitive phase. The question is: how long can this last? In a market this thin and volatile, it could turn at any moment. All it takes is a macro headline, a regulatory comment, or a liquidity hiccup."

Still, others are optimistic. Paul Howard, senior director at Wincent, said he expects bitcoin to trade higher in the weeks ahead.

“The more regulatory-friendly stance from the US and an increasing number of institutions that are coming into the market from both ETF and spot acquisition means we will see prices continue to move higher in the coming months, especially as the macro picture improves,” Howard told The Block. "The sense is it's more likely a case of buy in May and go away than any significant headwinds or selling pressure."