The Republican spending bill is sending yields soaring and creating a major market headache

On May 19, 2025, traders were active on the trading floor of the New York Stock Exchange, as depicted in the image by Spencer Platt from Getty Images News.

The financial situation of the U.S. in terms of debt and deficits is currently precarious and there are concerns that it may worsen. This has resulted in a high-profile credit rating downgrade by Moody’s, leading to a selling frenzy in both stocks and bonds. The future trajectory of financial markets largely depends on policymakers who are seemingly focused on exacerbating the U.S. fiscal issues in the name of bolstering growth through President Donald Trump’s ambitious spending bill.

According to Wall Street experts, the outlook is not optimistic. They believe that the recent actions by Moody’s and the trajectory of the spending bill indicate a concerning direction for the country’s debt, which currently stands at $36.2 trillion, with a significant portion held by the public. The tax cuts without corresponding spending cuts are expected to further strain the budget deficit, which is projected to reach 7% of the GDP.

Moody’s recently downgraded the U.S. debt rating due to ongoing fiscal deficits and increasing interest costs, though the outlook was revised from negative to stable. This move, coupled with trade tensions with major foreign holders of Treasury debt like Japan and China, has added to the market uncertainties.

The rise in Treasury yields, especially for longer-term bonds like the 10-year note and 30-year bond, reflects the growing concerns among investors about the fiscal situation, inflation, and the Moody’s downgrade. The escalating deficits are seen as unsustainable in the long run, and without a clear commitment to addressing them, investor apprehensions are likely to persist.

The proposed legislative measures, such as making the 2017 tax cuts permanent and eliminating certain taxes, are expected to further strain the fiscal condition. The potential outcomes of these policies are closely monitored by the markets, which anticipate higher interest rates, bond yields, and inflation.

The pressure on financial markets is not limited to bonds but also extends to stocks, as higher interest rates are anticipated to impact corporate profits, borrowing costs, and consumer spending. The global rise in bond yields and concerns over fiscal stability in other countries add to the overall market unease.

In this evolving economic landscape, investors are bracing for increased volatility in the stock market, as the shift towards higher interest rates and slower growth presents a complex investment environment.