Observers in the market caution that the increasing U.S. budget deficit and assertive trade policies initiated by President Donald Trump could pose a test for investors’ interest in government debt. Despite promises to reduce borrowing costs during his campaign, Treasury yields have been fluctuating since Trump’s election, initially spiking to 4.8% before stabilizing at 4.6%, as reported by the Financial Times. Investors are now navigating concerns over inflation alongside worries that new tariffs may impede economic growth.
Projections from the Congressional Budget Office indicate that the government deficit could reach $1.9 trillion, equivalent to 6.2% of GDP, by the end of September. It is anticipated to surge to $2.7 trillion by 2035, surpassing the 50-year average deficit of 3.8%. The investment community is grappling with uncertainty and perhaps nervousness, as stated by David Kelly, chief global strategist at JPMorgan Asset Management, who remarked to the Financial Times that it is not clear whether the focus should be on recession or inflation.
House Republicans have put forth proposals for tax cuts that could potentially total $4.5 trillion, in addition to a $4 trillion increase in the debt ceiling. The Committee for a Responsible Federal Budget estimates that these changes might contribute $2.8 trillion to the deficit through 2034.
There have been indications of caution among international investors, with major holders such as Japan and China reducing their Treasury positions in 2024. In December alone, foreign investors sold $50 billion in long-term Treasuries – the highest amount since May 2021, according to the Financial Times. Mark Sobel, former Treasury official and U.S. chair of think-tank Official Monetary and Financial Institutions Forum, emphasized the uncertainty regarding the financeability of the debt, stating, “It is, until it isn’t.”
Treasury Secretary Scott Bessent is under pressure to uphold market confidence while advancing expansionary policies. Despite this, analysts point out that U.S. debt maintains advantages due to market liquidity and the dollar’s prominence as a reserve currency. The Federal Reserve’s quantitative tightening initiative, which has seen a reduction in its Treasury holdings since mid-2022, introduces another aspect to the equation as the government potentially ramps up debt issuance, as highlighted by the Financial Times.
Ed Al-Hussainy, a rates analyst at Columbia Threadneedle Investments, warned that the size and duration of the fiscal deficit could present a significant challenge for the rates market. The article concludes by touching on various investment opportunities and resources for further stock market insights.
The article titled “Trump’s Massive Borrowing Plans” was first published on Benzinga.com in 2025. Benzinga does not offer investment advice. All rights are reserved.
