Big, Beautiful Bill Meets Big, Ugly Bond Market

Submitted by QTR’s Fringe Finance

One of the reasons many people voted for President Trump during this past election was the Republican Party’s focus on our nation’s out-of-control finances.

After four years of what can only be described as the Biden administration purposefully racking up as much debt as humanly possible—while not even telegraphing a semblance of fiscal responsibility—the Trump administration ran on a plan to drastically cut spending and inject some financial common sense into government.

So far, there’s been some tangible progress. Trump is trying to recalibrate global trade in order to bring in new revenue and narrow our trade deficit. DOGE has worked to try and cut wasteful government spending. And there have been more discussions about sound money and methods to try and address the nation’s debt in the Trump administration’s first few weeks than I heard during all four years of the Biden administration.

But now we’re staring down the face of a tax and spending package bill, referred to as the “One Big Beautiful Bill”, that’s dividing parts of the GOP.

Trump is advocating for his new bill because he believes it will stimulate economic growth, reinforce U.S. infrastructure and industry, and strengthen national security—all while projecting confidence in America’s financial future. He argues that targeted spending now can generate long-term returns through job creation, increased productivity, and global competitiveness. By pushing this bill, he’s aiming to balance fiscal responsibility with strategic investment, positioning it as a necessary step to rebuild the country’s foundations after what he portrays as years of neglect and mismanagement under the previous administration.

GOP opponents of Trump’s new spending bill argue that it adds too much to the national debt and doesn’t include enough spending cuts to balance it out. They’re concerned it could worsen inflation and say the government is trying to take on too much instead of leaving things to the states or private sector. Some also believe the bill is filled with unnecessary items and lacks clear focus. Overall, they see it as fiscally irresponsible and a step away from conservative principles of limited government and careful budgeting.

Last night Rep. Thomas Massie (R-KY) opposed Trump’s bill, calling it fiscally reckless due to its mix of tax cuts and increased spending. He warned it would add trillions to the debt and criticized the rushed vote on a still-unfinished bill. Despite pressure from GOP leaders and Trump, Massie voted no, underscoring deep divisions in the party over fiscal policy.

Massie correctly pointed out that investors continue to demand higher yields on U.S. bonds, signaling a loss of faith in the creditworthiness of the United States.

Massie is unique as a Republican because of his willingness to stand up to the MAGA machine and stand on principle. He’s also unique as a member of Congress in the sense that he’s probably one of about a half dozen people—out of the hundreds in Congress—who actually understand the bond market. And his concern early this morning, whether it’s taken seriously by President Trump’s administration or the rest of Congress or not, is warranted.

For lack of more complicated jargon, the bond market has recently been “out of whack”. Yields are rising despite the Federal Reserve being in the middle of a cutting cycle, and bonds sold off at the same time risk assets sold off after Liberation Day (they would usually catch a bid in a ‘flight to safety’ selloff). If it feels like the magnetic poles of the bond market have reversed, it could be because they have.

What does this mean?

The bond market has traditionally been comprised of far more sophisticated and sizable investors than the equity market: foreign governments, giant institutions, and extremely wealthy investors, to name a few.

As bonds sell off with risk assets and as yields rise despite the Fed cutting rates, these influential and sizable investing world powers that be are sending the message that things are not OK the way they are going. The rising yield indicates a desire to be compensated more for holding U.S. debt—sending the signal that it is riskier than people think it is—and it also sends a message to our Treasury and the Federal Reserve that the country’s fiscal house is not in order.

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The bond market is, in essence, a collection of investors so sharp that they can’t help but realize exactly how precarious the country’s financial situation has gotten, no matter how much of a polish or gloss politicians and government officials try to put on it. In other words, the bond market can’t be fooled—and by the looks of it, isn’t.

And no matter what side of the argument you’re on for Trump’s big, beautiful bill, there’s no doubt that the bond market is going to settle this dispute. If the bill passes and bond yields continue to rise, it will continue to tighten the fiscal screws for the United States.

The bond market blowing up has no silver lining either. As yields rise, so will the amount of interest we pay on the national debt, and it’ll publicly broadcast a lack of confidence in U.S. paper. And if the likely scenario occurs where the Fed somehow steps in with printed money and utilizes big banks to steady the Treasury market (sometimes called yield curve control, or a version of it)—that could thrust the United States further down the stagflationary path it’s already on.

The one solution has always been very simple: spend less while keeping revenue the same, increase revenue while spending the same, or increase revenue and spend less at the same time. One way or another, the deficit has to be addressed—and the time for doing it is right now — not five years from now, not ten years from now, not at any other point in the future.

The bond market knows this and has been sending this signal clearly since early April.

MAGA supporters can channel all the hate they want at the libertarian Republicans in Congress, just as Republican hardliners can lash out at what they believe to be more irresponsible spending. But the only true adjudication of this debate the country is having is going to come from the bond market.

If you’re not already, it’s time to watch very closely.

QTR’s Disclaimer: Please read my full legal disclaimer on my About page here. This post represents my opinions only. In addition, please understand I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. Contributor posts and aggregated posts have been hand selected by me, have not been fact checked and are the opinions of their authors. They are either submitted to QTR by their author, reprinted under a Creative Commons license with my best effort to uphold what the license asks, or with the permission of the author.

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