President Trump is getting much of what he wants and something he definitely doesn’t want: a bond market tantrum that could overshadow the market-friendly parts of his economic plan.
Trump is cruising toward a big political win as his tax bill moves from passage in the House of Representatives to consideration in the Senate. The House measure would make permanent all the individual tax cuts in the 2017 tax-cut bill, which are due to expire at the end of this year. The bill also includes tax breaks Trump touted while campaigning last year, such as the elimination of tax on income from tips and overtime pay. Businesses would get a few tax breaks that could boost investment and profitability.
The Senate will make some changes, such as reducing cuts to Medicaid and to green energy tax credits. But Republicans who control Congress now seem nearly certain to pass a bill by late summer that includes the tax provisions Trump cares most about. And it’s happening faster than in 2017, when it took a full year for Republicans to draft the first Trump tax-cut bill.
Trump’s trade war is unpopular, but that isn’t stopping him from enjoying it. The happy trade warrior has learned that he can command market attention any time he wants simply by threatening a new batch of tariffs. He did that on May 23 by warning of a new 50% tax on imports from the European Union and a 25% tax on Apple’s iPhones unless they’re made in the United States.
The stock market tanked on the reminder that Trump’s tariff bullying may never end. But this may also please Trump. It positions him to be the hero at some point in the future by announcing deals that avert the tariffs and demonstrate his mastery of mayhem. Stocks will rise again.
The bond market, however, is not nearly so manipulable. Early in his presidency, Trump and his Treasury Secretary, Scott Bessent, said keeping longer-term interest rates low was a top priority. They were specifically focused on the 10-year Treasury rate, which anchors most borrowing rates in the US economy.
At the time, rates had been drifting down, and there was reason to think that might continue, bringing some relief to consumers and businesses taking out loans. The rate on long-term Treasury securities is largely set by the markets, not by the Federal Reserve. Trump can’t control what the Fed does, which irritates him to no end. But he probably figured he’d be able to claim credit as the longer-term rates most Americans care about began to make mortgages and car loans more affordable.
A person carrying an umbrella walks past the National Debt Clock on April 7, 2025, in New York. (AP Photo/Yuki Iwamura) ·ASSOCIATED PRESS
Rates did decline for several weeks, with the 10-year dropping from 4.6% in mid-February to just under 4% in early April. But rates have shot back up since Trump launched his trade war in earnest, right around the same time. The 10-year is now back to around 4.5%.
If this becomes a permanent shift, it will mean higher interest rates for US borrowers and new problems dealing with America’s humongous national debt. Treasury rates are literally the price the United States government has to pay to borrow something like $2 trillion every year. As rates go higher, the US government spends more and more on interest payments, leaving less and less for everything else.
The US is on track to spend more than $1 trillion on interest payments in 2025. That’s about 15% of all federal spending and a roughly 200% increase from just five years ago, when interest payments totaled just $345 billion. Higher rates could push the US national debt, now more than $36 trillion, to the point of unsustainability within a time window that basically begins now.
The Republican tax-cut bill, which could add at least $3 trillion to the national debt and make all these problems worse, is arriving at precisely the wrong time. “The Republican Party may be picking a fight with the bond market,” economist Ed Yardeni of Yardeni Research wrote in a May 22 analysis. “The fact that [the tax cut bill] will add trillions of dollars to the primary federal deficit has agitated bond investors.”
Perhaps the most prominent warning came from Moody’s, the last of the three main rating agencies to downgrade America’s creditworthiness. “Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” Moody’s said in its May 16 downgrade. “The US’ fiscal performance is likely to deteriorate relative to its own past and compared to other highly-rated sovereigns.”
Future generations may view US policymakers in 2025 as a group of clueless squatters dismantling their own house stone by stone until it collapses on top of them. The bond market sees it coming. Rising rates and the unusual Treasury sell-off are now signaling that an unprecedented 25-year debt-fueled binge needs to end. Now, somebody needs to listen.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
