The U.S. debt market, a critical component of global finance, has been making headlines due to its recent volatility. At the root of this disturbance is the Trump administration’s economic agenda and congressional Republicans’ deficit-exploding legislation. The government’s consistent spending exceeding tax revenue results in a deficit of $1.8 trillion in 2024, or 6.4% of America’s gross domestic product.
The Treasury borrows money from creditors to cover this gap through bond sales. While investors are attracted by the relatively safe and risk-free nature of U.S. Treasurys, they’re now growing anxious about the sustainability of the debt. With the proposed legislation expected to add trillions to the already swollen deficit, economists are warning that the fiscal picture has become increasingly precarious.
In a short amount of time, the situation has shifted from being in the “green-light” region to the “red-light” region, according to economist Larry Summers. The GOP bill’s impact on the deficit is expected to be unprecedented, with some estimates suggesting an additional $5 trillion in debt. This will lead to higher interest rates for lenders, translating into more debt service.
The combination of rising debt and slower growth due to tariffs is causing investors to demand a higher return for their investment. The rate on a 30-year Treasury bond has climbed from 4% last September to 5%, resulting in an additional $300 billion in debt service. This increase will have far-reaching implications, including higher mortgage rates above 7%.
As the situation continues to unfold, it’s essential to understand that financial markets don’t subscribe to the administration’s narrative of economic stability. The bond market is sending a clear message: everything is not fine, and those in control are out of control.
Source: https://www.msnbc.com/opinion/msnbc-opinion/trump-republicans-bond-market-interest-rates-rcna208746