Don't just focus on tariffs! A crucial vote for Trump and the U.S. market has been postponed

The key budget resolution - "budget reconciliation" bill passed the U.S. Senate last Saturday by a narrow margin, originally scheduled for a House vote this Wednesday evening, attracting significant market attention.

However, it is currently delayed due to serious resistance within the Republican Party. This reflects significant divisions within the Republican Party regarding whether to cut programs such as Medicaid, health care, and food assistance. House Speaker Mike Johnson stated, "We may continue to push for a vote tomorrow."

The strategic significance of this budget resolution lies in unlocking the "budget reconciliation" mechanism, which will allow Republicans to bypass the Senate's "filibuster" rules. Through this process, Republicans can pass Trump's tax, border security, and military priority bills with a simple majority without Democratic support.

If this resolution passes in the House, it would mark an important step forward for Trump's tax cut agenda and the increase of the debt ceiling, alleviating market uncertainties brought about by Trump's trade policies while avoiding a potential debt ceiling crisis this summer.

However, the plan still faces uncertainty and is influencing the direction of the bond market. Deutsche Bank analysis suggests that the yield difference on U.S. Treasuries could reach 60 basis points under different scenarios. At the same time, this may increase the likelihood that the U.S. will have to adopt more unconventional policy measures in the future, including the previously discussed "Mar-a-Lago Agreement."

Narrow Majority and Stubborn Opposition: Power Struggles Within the Republican Party

As the "budget reconciliation" bill is set to face the House this Wednesday evening, Republican leaders in the House realize that their current numerical advantage is insufficient to pass the bill, leading them to decide to postpone the vote.

Trump and Senate Republican leader John Thune attempted to rally enough House Republican support for the Senate version of the budget bill at the last minute but were unsuccessful, indicating they may need to take additional measures to appease fiscal conservatives.

House Speaker Mike Johnson decided to postpone the House vote after more than an hour of talks with fiscal hawks within the party. He stated that "we may continue to push for a vote tomorrow," with the House planning to begin a two-week recess this weekend.

Johnson mentioned that he briefly stepped out during discussions with conservative lawmakers to make a phone call to Trump to report on the situation before announcing the postponement. He described the discussions with hardline conservatives as "very constructive."

Far-right conservatives argue that the Senate budget bill does not make sufficient cuts to Medicaid and other programs to fund tax cuts. They are concerned that even if the House passes a tax cut bill with accompanying spending cuts, the Senate may remove those cuts.**

The Republican Advantage in the House is Slim; They Can Only Lose Three Members in Any Vote

Considering that the Democrats are expected to unite against the plan, and the Republicans have a slim majority in the House with 220 to 213 seats, they can only afford to lose three members in any vote.

Opponents of the Senate plan, including Pennsylvania Republican Congressman Lloyd Smucker, Arizona Republican Congressman David Schweikert, and Texas Republican Congressman Chip Roy, have expressed a desire to establish a written minimum standard for significant spending cuts now. They believe that the commitments from Republican leaders and senators to "cut later" are insufficient.

Among them, Congressman Schweikert has maintained his opposition to the plan even after meeting with Trump. This open defiance of Trump is particularly rare within the Republican Party, indicating that this battle will not end easily.

Facing Opposition, Trump Continues to Apply Pressure

In the face of dissent within the party, Trump directly warned hesitant lawmakers at a Republican fundraising dinner on Tuesday night to "close their eyes and support me," a tough stance that shows the White House is increasing pressure on opponents.

Maryland Republican Congressman Andy Harris, chairman of the far-right "Freedom Caucus," told reporters that he declined the White House's invitation because government officials should engage in dialogue with lawmakers willing to change their stance.

In response, Mike Johnson expressed surprise:

"That doesn't sound like him... He is a very rational person and always willing to engage in deep dialogue."

Budget Reconciliation: A Key Tool to Bypass the Democrats

The "budget reconciliation" bill allows Republicans to bypass the Senate's "filibuster" rules and pass tax, border security, and military spending bills with a simple majority.

The Senate version allows for over $5 trillion in tax cuts while promising $40 billion in spending cuts. Senators have stated that their goal is to cut $2 trillion in spending but hope to maintain maximum flexibility. Trump has indicated on social media that he supports significant spending cuts, "hoping" for over $1 trillion.

However, there are significant differences in key details between the House and Senate versions:

The House has only set a $4.5 trillion tax cut scale.

The Senate plans to cut about $40 billion in spending, while the House seeks to cut at least $1.5 trillion in spending.

The House version includes directives for the Energy and Commerce Committee to cut $880 billion in spending, raising concerns that could severely impact the Medicaid program.

Is the U.S. Debt Market at a Crossroads Again? Are Non-Traditional Policy Measures on the Horizon?

If this political tug-of-war leads to setbacks in the tax reduction plan, it will have a significant impact on the financial markets.

Deutsche Bank analysis points out that the scale of tax cuts and the uncertainty of debt financing will determine the direction of the bond market, with differences in U.S. Treasury yields under different scenarios potentially reaching 60 basis points.

The degree of looseness in future fiscal decisions will directly affect the upward space of the U.S. term premium: if the tax cuts are too large without corresponding spending cuts, U.S. Treasury financing will face severe challenges and may push up long-term interest rates. At the same time, this will also increase the likelihood that the U.S. will have to adopt more unconventional policy measures in the future, including the "Mar-a-Lago Agreement" that some investors are concerned about.

In addition, once the debt ceiling increase of $5 trillion is passed, the scale of U.S. Treasury basis trading may trigger market liquidity risks.