Then, Haworth said, long-term yields also began reacting to tax bill developments.
“I think the bond market has some concern that this is not quite as deficit friendly as they’d like,” he said.
“As things [stand],” Deutsche Bank strategists wrote, “it looks improbable that the eventual package will deliver any meaningful reduction of the elevated U.S. fiscal deficit.”
Proponents of the bill argue lost revenue will be made up for by economic growth resulting from lower taxes and deregulation, but bond investors might not be convinced. After all, Haworth said, a boost to growth from tax cuts may fight to solely offset a slowdown due to tariffs.
“Once again, the experts are wrong, just as they were about the impact of Trump’s tariffs, which have yielded trillions in investments, record job growth, and no inflation,” White House Deputy Press Secretary Harrison Fields said in a statement to Fortune. “These experts should be embarrassed to share their ‘expertise,’ considering the egg still on their faces. MAGAnomics transcends conventional wisdom, and the President’s One Big Beautiful Bill will continue to prove the haters wrong.”
A bigger budget deficit means more government borrowing. That increases the supply of Treasury debt, which makes existing bonds less attractive and causes investors to drive up yields.
“Perpetually running a deficit and raising the debt ceiling is probably an unsustainable way to run the government,” Miguel Laranjeiro, investment director for municipal debt at Aberdeen Investments, told Fortune.
“So to some extent, they exist,” Haworth said of bond vigilantes, “but their nature is very, very different.”
Trump’s position as president, of course, is much less vulnerable. The bond market, however, may be one of the few things he must answer to.
