Trump Tax Bill Sparks Treasury Yield Surge—Wall Street Braces for Fiscal Fallout

Bond markets shudder as Trump-era tax policies send yields climbing—again. No one saw that coming (except everyone with a Bloomberg terminal).

Fear gauge spikes as deficit hawks circle: The ’tax-cut magic’ wears thin when creditors demand their pound of flesh.

Bonus jab: Another day, another dollar—unless you’re betting against the Fed while shorting volatility. Then it’s just another margin call.

Downgrades, debt warnings, and market hesitation rock Treasury yields

The whole thing got worse after Moody’s downgraded the US credit rating by one level last Friday. They blamed it on the exploding budget deficit and rising costs of borrowing. That rating now sits one step below the top tier. Moody’s didn’t say a default is coming—but they didn’t rule out financial pain, either.

Thierry Wizman, who leads global rates and currencies at Macquarie, explained the math. “Even if the inability to reduce the deficit in the US doesn’t lead to default, a large deficit still implies greater bond supply, and perhaps eventual inflation as the debt is monetized to avoid default,” Wizman said. “Either way, it makes nominal fixed-income instruments less attractive as long-term investments.” So yeah, not many folks want to sit on Treasury bonds for the next 10 years right now.

Meanwhile, a legal decision on Thursday gave the Federal Reserve some breathing room. The Supreme Court suggested that the central bank’s board members—including Chair Jerome Powell—can’t be casually removed by Trump. That helped cool off fears that TRUMP would fire Powell for not cutting rates fast enough.

Investors were also waiting for more economic data—specifically, reports on new home sales and building permits were expected later Friday. Rising Treasury yields could make those numbers worse if mortgage rates continue to climb. But until those reports landed, markets stayed frozen.

Over on Wall Street, the mood wasn’t any better. Early Friday, Dow Jones futures slipped 15 points, or 0.04%, with the Nasdaq 100 down 0.09%. The S&P 500 barely moved. The slow action came after a rough few days. By Thursday’s close, the S&P 500 had already dropped 2% for the week. The Dow was down 1.9%, and the Nasdaq was tracking a 1.5% weekly loss.

Every one of those moves can be traced back to the Treasury market. If Trump’s tax plan becomes law, and it adds trillions to federal debt, bond investors will demand higher yields to cover the risk. That means more expensive debt for everyone else—from homeowners to corporations. And that’s exactly what traders are worried about.

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