America’s jittery bond market risks facing a mini-Budget style meltdown as investors grow nervous over the surging US deficit, Europe’s second-largest bank has warned.

The stark warning of an event that could do untold damage to global markets comes after rating agency Moody’s downgraded the world’s largest economy’s credit rating.

Analysts at French bank BNP Paribas said: “The bond market is in a delicate state, and the risk of a Liz Truss moment is a non-trivial possibility in current conditions”.

Fears over the debt-bloated US economy have surged in the wake of Donald Trump’s trade war, which economists believe could spark a recession despite the President scaling back some tariffs.

BNP Paribas’ analysts warned that “it would not take much” to push the deficit from 6.4pc relative to the size of the economy “to about 9pc of GDP in 2026 if a recession started this year”.

It comes after Mr Trump’s “big, beautiful” tax bill that is expected to fuel borrowing further survived Republican wrangling and came one step closer to a full vote in the House on Sunday.

The French bank’s analysts said that while they expect Congress to turn “bond vigilant” and rein in the president, this is a particularly fraught moment.

They said: “The tax bill being discussed by Congress is a crucial checkpoint - and possibly an inflection point for the US Treasury market”.

The FTSE 100 closed higher as investors turned to its defensive stocks amid the uncertainty in global markets.

The UK’s flagship stock index climbed 0.9pc to close at 8,781.12, while the mid-cap FTSE 250 gained 0.7pc to 21,096.44.

Dan Coatsworth, investment analyst at AJ Bell, said: “The FTSE 100 is proving to be quite the comfort blanket for investors seeking solace from tariff-related uncertainties clouding the economic outlook for the US. Wall Street was bathed in a sea of red while UK shares ploughed ahead.

“The longer this trend stays in motion, the quicker the UK will shake off its reputation of being an unloved market.”

Diploma was the biggest gainer, surging 15.1pc to close at a record high after the supplier of building components upgraded its full-year outlook.

Vodafone rose 1.4pc after it said it will return to sales growth in its struggling German business over the year ahead after swinging to an annual loss.

Thanks for joining us today. We will be back with more updates on the markets tomorrow.

Donald Trump failed to convince several of his fellow Republicans in Congress to unite behind his sweeping tax-cut bill during a behind-closed-doors meeting on Capitol Hill.