In the world’s biggest bond market, investors are pushing back against President Donald Trump’s tax-cut plan.
On Wednesday, they drove yields on benchmark 30-year Treasuries to as high as 5.1%, leaving them just shy of a two-decade high and sparking declines in stocks and the dollar, as administration officials met with Republican lawmakers to hammer out a deal to enact the cuts.
The concern is that the tax bill would add trillions of dollars in coming years to already bulging budget deficits at a time when investor appetite is waning for US assets across the globe.
“Make no mistake, the bond market will have its own vote on the terms of the budget bill,” said George Catrambone, head of fixed income and trading at DWS Americas. “It doesn’t seem this president or this Congress is actually going to meaningfully reduce the deficit.”
Investor sentiment toward Treasuries, which took a big hit after Moody’s Ratings stripped the US of its top credit grade late last week, deteriorated further on Wednesday following an auction of 20-year bonds that drew surprisingly tepid demand.
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US 30-Year Yield Above 5%, Near 2023 Cycle Peak
The rout deepened a weeks-long selloff in bonds and underscored investors’ deepening disenchantment with the push in Washington to pile on more and more debt. The fixed-income slide also emboldened conservative Republican lawmakers who oppose Trump’s tax-cut plan. Ahead of a key negotiation session scheduled for this afternoon in the White House, some of them took to social media to point out the bond slump and the message it was sending.
Representative Chip Roy, a Texas Republican and a ringleader of the fiscal hawks, noted a posting on X about the “horrible bond auction.” Separately, Warren Davidson, an Ohio Republican, also highlighted a post on rising yields.
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Overall, bond investors are demanding more compensation to buy longer maturities — and not just for the US. Japanese and UK 30-year yields also have risen sharply this week.
“The bond market is giving a warning sign to policymakers that fiscal sustainability issues cannot be ignored for too much longer,” said Priya Misra, a portfolio manager at JPMorgan Asset Management. “It is not just the bond market, but now those fears are gripping risk sentiment and equities, and credit are also paying attention.”
Vigilantes Stir
The stirring of the so-called bond vigilantes marks a moment when enough investors decide that only by imposing higher borrowing costs will governments finally bow to the pressure and cut spending. It’s a process that last played out in the US during the early stages of the Clinton administration in 1993 and in Europe after the financial crisis.
“The market’s gonna bring discipline to this thing one way or the other,” said Tim Magnusson, the chief investment officer at US$11.5 billion hedge fund Garda Capital Partners. “Until you tackle entitlement reform — social security, Medicare, Medicaid — they are not going to move the needle. That’s the only way. It’s always the bond market that brings the discipline.”
While current US yields between 4% and 5% are near levels that prevailed before 2007 and the financial crisis — and the US historically has paid far higher rates at times — debt and deficits now are exponentially bigger, and that makes all the difference.
A look at the fiscal red ink reinforces why the bond market is on edge. The ratio of total US public debt to the size of the economy is around 100%, according to the Congressional Budget Office. Interest payments alone were about US$880 billion in 2024, CBO data show, exceeding the defence budget.
The amount of outstanding Treasuries has skyrocketed to nearly US$30 trillion from less than US$14 trillion at the end of 2016, a reflection of tax cuts passed during Trump’s first term and then an explosion in borrowing during Covid, under both Trump and former President Joe Biden. Annual gross sales of government debt hit a record US$2.6 trillion last year, according to Sifma, the bond market’s trade group.
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“The administration appears to be making a pretty adventurous or risky bet that growth is going to bail the debt and deficit trajectory out,” said Bill Campbell, a portfolio manager at DoubleLine. “But you are running the risk that if it doesn’t, you’ve now increased the trajectory of fiscal deterioration. You’re running the risk that you’re going to potentially make that trajectory even more difficult to address going forward.”
The intensifying investor concern looms as a challenge for the US, which has taken full advantage of the dollar’s status as the world’s primary reserve currency through the decades. It also reinforces the worst-case scenario painted by Treasury Secretary Scott Bessent, who this month told US lawmakers that the nation’s debt path is unsustainable.
He also indicated an awareness of the power of the bond vigilantes, adding it’s “very difficult to know” the tipping point at which investors would “rebel.”
