From Morningstar: 2025-05-27 04:49:00

Bond market jitters are on the rise due to Trump’s new tax bill, which could add $3 trillion to the deficit. Inflation concerns and trade policies are also fueling fears, leading to higher yields and potential economic implications, from mortgage rates to stock market valuations. Yields on long-term bonds have hit multi-year highs, with Japanese and UK markets also affected.

Investors worry about US debt risks as the government issues more bonds to finance tax cuts and trade policies. Higher bond yields could increase government interest expenses and inflation, impacting consumers and businesses through higher borrowing costs for mortgages, loans, and credit cards. Market jitters may affect equities and currencies, with the Fed possibly keeping interest rates higher for longer.

Concerns also arise from timing deficit spending during a strong economy, with potential implications for future economic growth. Despite a solid economy, the US faces rising deficits without corresponding spending cuts. Strategists predict bond yields could continue climbing if the fiscal outlook doesn’t change, with 5% yields on the 10-year Treasury becoming more likely. Buyers may step in to stop the selloff, but more yield may be needed given the rising deficits. 10-year yields are approaching levels not seen since October 2023. Investors are advised to focus on bonds with intermediate durations like five-year bonds. They should avoid holding too much cash and look into higher-quality options such as investment-grade corporate bonds or municipal bonds for tax benefits.



Read more at Morningstar: Trump’s Tax Bill Adds to US Bond Market’s Woes