Following an increase in U.S. bond yields that pushed President Bill Clinton to retreat from his budgetary proposals in 1993, James Carville, one of his chief advisors, remarked:



The Wall Street Journal,



I once believed that if reincarnation were possible, I’d want to return as either the president, the pope, or a .400 batting average baseball player. However, these days, I’d prefer to be reborn as the bond market because you can scare everyone.


Over the coming several decades, the interest rates on U.S. government debt will be watched closely.



fell and stayed down



It appeared that the bond market had abandoned its position as an influential legislative enforcer.


The bully has returned. It has already emerged victorious in its initial confrontation with the Trump administration regarding tariffs—and now, it seems poised to engage in yet another skirmish over the House Republicans’ substantial tax reduction and increased spending bill.


The bond market’s early triumph occurred when President Donald Trump halted the tariffs he had declared on April 2, which were set to take effect on April 9, merely hours later. What prompted this swift reversal? Here’s what



the president said



: ”


I was keeping an eye on the bond market. It can be quite complex. However, when I looked again today, it appeared wonderful. Currently, the bond market looks great. Still, yesterday some folks seemed a bit uneasy.”


The president observed an intensification of selling activity in US government bonds following Liberation Day. This led to investors offloading their holdings of U.S. Treasury securities, causing yields to climb sharply. When the value of a bond decreases, the return paid out to investors—referred to as the yield—in turn increases due to this inverse correlation; hence, “falling bond prices” and “rising yields” are commonly used synonymously in finance circles.


Tumult in the U.S. Treasurys market is an event with financial consequences unlike any other. There’s



$28 trillion



in U.S. government bonds. That debt is a global financial safe haven and international benchmark. Trillions and trillions of dollars of mortgages, personal debt and corporate debt are priced based on U.S. Treasurys. If you had to choose one number to track the vitality of the American economy and centrality of the United States government in the global order, it would be the price of Treasurys.


And now, the bond market is having its say on the president’s massive tax-cutting and spending-slashing bill, which the House GOP just barely managed to pass



early Thursday



:



Treasury yields soared



in recent weeks as the details of the legislative package came into focus and



now are well above the rate



that forced the tariff “pause” in April.


A lot of the coverage for why the bond market doesn’t like the “big, beautiful bill” focuses on the fact that its



policy changes will increase government debt



By cutting taxes without significantly increasing revenues through other means. However, the bond market does not consistently respond to an expanding national debt in the same manner. A prime illustration of this is the period following the Clinton administration in the U.S.: despite rising debt levels, interest rates decreased and remained low for many years.


This is partly because of a worldwide trend triggered by the 2008 financial crisis called the “Zero Interest Rate Policy” (ZIRP), during which central banks globally maintained interest rates near zero for several years.


However, a significant reason the bond market dislikes the GOP tax cuts is


how


They grow the debt: The legislation reduces taxes for the wealthy individuals while decreasing expenditures on social welfare initiatives. In summary, as economist Justin Wolfers points out,



summed it up



As “the biggest transfer of wealth from the poor to the rich in American history.”


Consequently, the Republican budget proposal not only escalates the yearly federal deficit but also undermines economic expansion. This occurs because reducing taxes for wealthy individuals offers less stimulation to the economy compared to other forms of expenditure. Wealthy persons tend to save more since they already possess significant resources; hence, their tendency to spend additional income is lower from an economist’s perspective. Furthermore, Trump’s plan slashes initiatives that boost economic development, such as direct investments in growth-enhancing programs.



clean energy tax benefits



from the Inflation Reduction Act.


Include the point that Trump’s tariffs are still set at rates equating to



one of the greatest tax increases in American history



, the cost of which will be borne disproportionately by middle- and lower-income consumers, and the outcome is simultaneous and



wildly hypocritical




fiscal austerity and profligacy



that will hamper growth and increase the national debt.


All the while, Europe, after more than a decade of destructive adherence to austere fiscal principles,



is finally




ramping up government spending



, giving investors looking for debt issued by relatively prosperous economies governed by the rule of law an alternative to U.S. Treasurys.


This is more than enough to draw the bond market into another confrontation with the Trump administration. The first time around, the president did what the bond market wanted. This time around, with Republicans seemingly dead set on passing a bill the U.S. Treasurys markets hate while Trump gets back to



announcing tariffs on a whim



, the domineering figure in the bond market will have to become even more forceful to compel the GOP to follow its lead.