TradingKey - On Thursday, May 22, the U.S. House of Representatives narrowly passed Trump’s tax cut and spending bill by a margin of just one vote (215–214). This not-so-"beautiful" version of the so-called “Beautiful Big Bill” incorporates most of Trump’s policy proposals, but its implications for the fiscal deficit have raised concerns — and it now faces further scrutiny from the Senate and the bond vigilantes.

Following the vote, yields on 20-year and 30-year U.S. Treasuries dipped slightly but remained above 5%, while the 10-year yield stood at 4.533%, up roughly 40 basis points since the beginning of May.

Having cleared the House and budget resolution hurdles, the bill is now entering the second legislative stage. It still needs to pass the U.S. Senate, undergo reconciliation between the two chambers, receive final approval, and be signed into law by the President before it can take effect.

Senate Pushback Looms

Senate Majority Leader John Thune said that senators have serious questions about making tax cuts permanent, and there are ongoing intense discussions around Medicaid cuts.

One Republican senator emphasized that he wants to ensure Medicaid benefits are not significantly reduced.

Another senator warned that the Senate may make significant amendments to the House-passed version — and the process could take longer than expected, given the complexity and political sensitivity of the legislation.

Fiscal Deficit Concerns — A Major Obstacle

The massive fiscal deficit implications of the tax bill also pose a major challenge — not only in terms of congressional disagreements, but also in how it affects the $29 trillion U.S. Treasury market, as seen in the recent selloff and rising bond yields.

The Congressional Budget Office (CBO) estimates that Trump’s “Beautiful Big Bill” would add $3.8 trillion to the $36.2 trillion federal debt over the next decade.

Market Reaction: Bond Vigilantes Are Ready

John Fath, Managing Partner at BTG Pactual Asset Management, remarked that investors are already fed up. He said, “You have to ask yourself, what is it going to take? It’s going to be the price action.”

There is growing concern that bond vigilantes — investors who sell government bonds to pressure policymakers — are ready to act if fiscal discipline continues to erode.

If Treasury yields continue to rise, the U.S. government’s debt burden could worsen. High interest rates slow economic growth, accelerate fiscal deterioration, and increase the cost of servicing the national debt.

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