"Just like a ship is about to run aground, but the helmsman is arguing about which direction to turn," investors question whether Trump's tax cut plan exacerbates debt

The U.S. Treasury market is on the eve of a storm, and the massive tax cut bill pushed by the Trump administration may become the last straw that breaks the camel's back.

The budget bill passed by the U.S. Congressional Committee on Sunday is expected to increase the federal deficit by trillions of dollars over the next decade. This bill, along with credit rating downgrades, has intensified concerns about the sustainability of U.S. public finances, with many investors and analysts stating that the country's debt and deficit are already at disturbingly high levels.

In an interview with the media, Bridgewater Associates billionaire founder Ray Dalio commented:

“It’s like a ship is about to hit a reef, and the captain is arguing about which way to turn. I don’t care whether they turn left or right; I care more about whether they can get the ship back on the right course.”

Tax Reform Bill Sparks Panic, "Bond Market Vigilantes" Ready

It is reported that this tax reform plan will extend the massive tax cuts implemented during Trump’s first term and also plans to significantly cut healthcare programs and food assistance for low-income individuals.

White House Press Secretary Karoline Leavitt stated on Monday that the bill “will not increase the deficit,” echoing claims from other Trump administration officials that the tax cuts will accelerate economic growth.

However, according to the nonpartisan Committee for a Responsible Federal Budget, this legislation will increase public debt by at least $3.3 trillion by the end of 2034.

The organization stated that this will also raise the debt-to-GDP ratio from the current 100% to a record 125%, far exceeding the projected 117% under current law; the annual deficit will rise from about 6.4% of GDP in 2024 to 6.9%.

Following the House Budget Committee's advancement of the legislation and Moody's downgrade of the U.S. rating, the yield on 30-year U.S. Treasuries soared to a peak of 5.04% on Monday, marking the highest level since 2023.

Tim Magnusson, Chief Investment Officer of Garda Capital Partners, stated:

“We are at a turning point in the Treasury market, and to keep Treasury yields at current levels, we need good news about the deficit as soon as possible. If someone needs to impose constraints, it will be the bond market.”

Edward Yardeni, President of Yardeni Research, pointed out:

“The bond market vigilantes are ready, and they are prepared to take action.”

Global Capital Begins to Lose Confidence in the U.S.

Concerns about fiscal policy and uncertainty over tariff policies have made investors more cautious about their exposure to dollar assets.

Bill Campbell, a portfolio manager at DoubleLine Capital, noted that the firm is “underweight” on 20-year and 30-year U.S. Treasuries, believing that the country “shows no serious signs of trying to control its debt.”

George Saravelos of Deutsche Bank stated:

“The decline in willingness to purchase U.S. assets and the difficulty in controlling high deficits in U.S. fiscal procedures are the reasons for the heightened tension in the market.”

In Dalio's view, the U.S. needs to quickly reduce the deficit to 3% of GDP through some combination of measures, including reducing spending, increasing revenue, and lowering real borrowing costs.

As the U.S. Congress continues to advance Trump's tax cuts, the future outlook for U.S. public finances becomes increasingly bleak, and investors may soon have to pay the price for the U.S. government's "indulgence."