Bond investors are mutinous again. US government bonds sold off sharply in response to Trump’s tax and spending bill, raising fears that the US is in for its own “Liz Truss moment.” The UK prime minister was bounced from office in 2022 after proposing a budget that cut taxes far more than it cut spending — sowing fears that the government would have to borrow heavily to close the gap. Investors dumped their bonds and (aided by poor risk management in an arcane corner of the pension system) set off a gilt crisis.
Republicans’ “Big, Beautiful Bill” likewise cuts taxes more deeply than spending, and nonpartisan congressional accountants expect it to add $3.3 trillion to the national debt by 2034.
Bondholders don’t want to be bagholders, and there were already worries about declining demand for Treasury bonds. One market veteran told Bloomberg that “it may be necessary to have a repeat” of the UK crisis “to force everyone to do the right thing” and get serious about fiscal discipline.
As Semafor’s politics team has reported, the bill faces opposition from enough Republicans to sink it. “I’d be really seriously concerned on what the actual Plan B is, because I haven’t heard about it,” said Rep. Cory Mills, R-Fla.
The long-term fallout of a Truss-like episode shouldn’t be underestimated, though: UK government bonds have underperformed rich-country peers since 2022, Goldman Sachs said in a note to clients yesterday. “The experience of Gilts after the mini-crisis offers important lessons… as the US economy now exhibits a worse trade-off with low growth and high inflation,” the bank’s economists wrote.
