Why the huge Washington tax bill is concerned about bond investors

For decades, Budget Hawks warned that loading the United States’s debt was not sustainable and that leaking expenses financed by money borrowed would end up frightening loans in the United States. These fears are now held more strongly on the bond market and may spread more.

The tax reductions pushed by the Trump administration amplifies debt and deficit problems among bond investors, a powerful group of market players who strongly influence the cost of the government to finance its budget. The purchase and sale of public debt, called treasury vouchers, also influence interest rates on a wide variety of debts extended to American households and companies, including mortgages, credit cards and car loans.

These investors were already on the verge of President Trump’s pricing policy. Then, this week’s attempt to sweep the tax discounts without considerably reducing expenses – in what the president called for a “great and beautiful bill” – triggered a new fight of bond market. Trump exerted more pressure on republican legislators on Tuesday, visiting Capitol Hill and warning that not to advance the bill would result in an increase in taxes.

Since the fall of less than 4% in early April, the 5 -year treasure yield has exceeded 4.5%, a major decision reflecting the concerns of the deficit. The 30-year yield movements this year have also been striking: it jumped above 5%, its highest level in about a year and a half.

Speaking with journalists on Tuesday, Raphael Bostic, president of the Federal Reserve Bank of Atlanta, warned that volatility on the treasury market could add an uncertainty already increased as to economic prospects.