Andrea Riquier, USA TODAY
4 min read
President Donald Trump has called his signature tax legislation a “big, beautiful bill.”
Bond investors would beg to differ.
The $28 trillion market for U.S. Treasurys has had an uneasy several days as the tax bill made its way through Congress. The 30-year bond has gained roughly 11 basis points since Monday, May 19, touching the highest level since 2023.
Bond yields rise when prices fall, and vice versa – and that’s why the bond market’s opinion on government policy matters. If investors are less interested in the debt issued by the United States government, they will force the government to entice them with a higher interest rate. If the government is paying more for its debt, it has less money to pay for services that make it a good place to live – and a vicious cycle may result.
(The bill) “looks like a budget buster in the near term when it comes to spending,” said Christopher Rupkey, chief economist for FWDBONDS, a markets research company. “Bond yields are rising anticipating there will be more Treasury auctions to fund the budget deficit red ink.”
It’s not just the rising deficit that has investors spooked.
The tax bill is just one of many Washington policies that are expected to increase inflation, said Steve Blitz, chief U.S. economist at GlobalData, in an interview. In the short term, tariffs will add to the cost of consumer goods. Over the longer term, the White House’s stated goal of bringing manufacturing jobs back to the United States will make them more expensive to produce.
When inflation is rising, the fixed income payments that bonds give off become less valuable.
Against that backdrop, and with the recent Moody’s downgrade of the United States’ credit rating, “I would think investors might be a little gun-shy,” Rupkey told USA TODAY. “This doesn’t look good. Certainly the outlook isn’t a good one. This is something we haven’t seen in a while.”
As the federal government’s finances deteriorate, it has a ripple effect throughout the national economy. For one thing, state and local governments' borrowing power is directly linked to that of the "sovereign," the United States.
“Market participants should consider the possibility that the historical treatment of the federal government in municipal ratings/credit assessments may be shifting,” wrote Municipal Market Analytics partners in a May 19 research note. “Moody’s recent downgrade of the state of Maryland’s Aaa rating is (in our opinion) early evidence that the federal government’s weakening credit position is becoming a more pressing factor in municipal rating outcomes.”
