President Donald Trump’s tax bill, which aims to extend his 2017 tax cuts, has sparked concerns among market experts that the bond market is on the verge of chaos. The $4 trillion increase in the US deficit over the next decade could add pressure on the government’s borrowing, threatening the safe-haven status of US Treasurys.
According to a projection from the Tax Foundation, the bill would push yields on 10-year US Treasury bonds up to 5%, sparking big sell-offs in stocks and potentially leading to a recession. Ed Yardeni, president of Yardeni Research, predicts that the yield could spike as high as 5% as details of the tax bill are ironed out.
The bond market has been quiet so far, with yields down this week due to cooler inflation data. However, experts believe that once the tax bill becomes law, the situation could change rapidly. Yardeni notes that the Treasury market is “watching with great interest” how the tax bill unfolds and may lead to another “Liberation Day-type” sell-off.
Peter Berezin, chief global strategist at BCA Research, estimates a 30% chance of a “nightmare scenario,” where the new tax bill prompts fears of fiscal crisis and sends yields soaring past 6%. He believes that the risk is uncomfortably high unless Trump is willing to cut entitlement programs or raise taxes.
The bond market’s power over the president was evident during April’s market meltdown due to tariffs. However, experts say that while individual investors have some influence, it is more accurate to describe bond vigilantes as a description of the market’s reaction to policies that could make Treasurys less safe.
Source: https://www.businessinsider.com/tax-bill-bond-market-us-debt-gop-trump-vigilantes-yields-2025-5