The bond market is sending a clear signal: investors are growing increasingly skeptical of the U.S. government’s ability to manage its finances. The yield on 30-year Treasury bonds has risen above 5%, nearing an 18-year high, following President Donald Trump’s introduction of the “One Big Beautiful Bill Act.”
Trump’s plan to impose 50% tariffs on all EU imports has further fueled the turmoil. Moody’s, a leading credit rating agency, has expressed concern over the U.S.’s twin deficits and the potential impact on inflation and economic stability.
Mark Dowding, chief investment officer at RBC BlueBay Asset Management, noted that the administration’s policies are inspiring skepticism among bond market investors due to the increasing debt trajectory. Trump’s measures, including substantial tax cuts first introduced in 2017 and now extended to offset spending cuts in areas such as Medicaid, are expected to significantly increase the U.S.’s annual deficits and national debt. The Committee for a Responsible Federal Budget estimates that these measures could push the U.S. annual deficits to $2.9 trillion by 2034, or to $3.3 trillion if temporary policies are made permanent.
This would mean the debt-to-GDP ratio could increase to 125% or even 129% by 2034. While borrowing can spur economic growth if managed effectively, persistent deficits and an ever-increasing debt level risk eroding investor confidence in the U.S.’s ability to manage its obligations.
Bond market signals skepticism
Higher borrowing costs, in turn, could crowd out private investment and exacerbate financial instability. Despite these concerns, Trump argues that tariff revenues will offset tax cut costs and stimulate economic activity by increasing consumer and business spending. However, the nonpartisan Tax Foundation projects that current tariffs could net $2.1 trillion between 2025 and 2034 but would ultimately reduce long-term GDP by 0.6%.
ING Bank analysts highlight that concerns about U.S. borrowing are persistent and the proposed tax and spending measures may not considerably boost short-term economic growth. Bond market fluctuations are not limited to the U.S.; they also impact global financial markets. Rising U.S. borrowing costs influence international securities, elevating government interest rates worldwide.
In the UK and Japan, borrowing costs have surged, complicating fiscal strategies for respective governments amid inflation concerns and policy adjustments. As the economic landscape faces increased challenges, the global debt levels addressed post-2008 financial crisis and COVID pandemic are compounded by trade tensions and fiscal policies under Trump’s administration.
