US Bond Market Faces Turbulence as GOP Budget Bill Raises Deficit Concerns

The US bond market is experiencing a wave of anxiety due to House passage of the GOP budget bill, which has the potential to add trillions to the federal deficit. This has led to a surge in bond yields and has unsettled the stock market.

What Happened: The bond market is responding to the GOP budget bill that was passed in the House on Thursday. The bill could lead to a significant increase in the federal budget deficit, triggering a sell-off in Treasuries.

The 30-year bond yield has risen above 5.1%, while the 10-year US Treasury yield has increased beyond 4.6%. The GOP’s tax-cutting bill could add as much as $4 trillion to the deficit over the next decade, as per the Tax Foundation.

Michael Brown, a senior research strategist at Pepperstone, voiced investor concerns about the US debt levels potentially reaching unsustainable levels. “I think the issue is more that starting to worry about whether we’re getting close to or whether we are at a sort of tipping point,” Brown told Insider.

“It is not a new phenomenon. I think the problem is we’re all now starting to wake up to the fact that nobody, certainly in the US, actually wants to do anything to get things under control,” he added.

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Higher deficits could result in more debt, inflation, and increased prices for Americans. The Yale Budget Lab estimates that a 1% increase in the US debt balance relative to GDP could reduce households’ purchasing power by $300 to $1,250 over the next five years.

For the first time last year, the US spent more on debt service than on the military, with debt service accounting for 3.1% of GDP growth. This increased borrowing and deficit spending could undermine confidence in the US as a safe market for investors’ money.

Brown suggested that the bond market volatility might stabilize in the coming months. “The market has just got very, very jittery right now over what’s going on in Congress and digesting it, but actually should be okay in two or three months. Things should settle down,” he continued.

Why It Matters: The GOP budget bill’s potential impact on the US deficit is causing significant concern in the bond market.

The resulting volatility could have far-reaching effects on the economy, affecting everything from inflation rates to household purchasing power.

As the US continues to grapple with these issues, the stability of the bond market will be a key factor to watch.