Trump's tax cut and spending bill will increase U.S. debt, leading to credit rating cuts

From Yahoo Finance: 2025-06-30 05:27:00

Foreign investors are seeking to diversify out of U.S. Treasuries due to deficit spending and inflation-boosting tariffs under Trump’s administration. Trump’s tax cut and spending bill will increase U.S. debt by $3.3 trillion, leading to credit rating cuts and concerns about the fiscal deficit expansion.

Treasuries have become less attractive due to Trump’s erratic policies, with overseas investors turning to European debt. Data shows foreign money leaving U.S. short and long-term debt, causing Treasury yields to fluctuate. Japan, Britain, and China are among the biggest holders of Treasuries.

Senate Republicans are expected to pass Trump’s bill, which could lead to even wider deficits in the U.S. European investors may dump Treasuries and bring their money home, favoring German bunds and pan-European debt. While fiscal concerns are expected to steepen the Treasury yield curve, a widespread sell-off is unlikely.

Analysts predict a ‘diversification, not divestment’ trend among foreign investors with a focus on a steeper Treasury curve. U.S. risk premiums are expected to widen, with U.S. credit default swaps quoting at a premium compared to other sovereigns.

Read more: Trump’s ‘big, beautiful’ bill set to further tarnish Treasuries’ lustre overseas