Goldman Sachs President: The bond market is more concerned about U.S. debt than tariffs

Goldman Sachs, a major Wall Street firm, recently warned that the debt threat has surpassed tariff concerns for the bond market.

According to reports, Goldman Sachs President John Waldron stated at the Bernstein conference on Thursday (May 29) that bond traders' worries about the level of U.S. government debt are rising sharply, and this risk now exceeds that of tariffs.

Waldron believes that the biggest macro risk at present is not tariffs, "Although all attention is focused on tariffs, the bond market's attention is shifting to the U.S. tax reduction plan and fiscal situation, which is quite concerning."

The investment banker, widely regarded as a leading candidate for Goldman Sachs' next CEO, pointed out that the increase in U.S. Treasury issuance is pushing up interest rates, particularly at the long end of the yield curve. This makes the cost of U.S. government debt more expensive and increases the risk of a growing deficit and rising borrowing costs across the economy.

Waldron's assessment is not unfounded, as the trend in U.S. Treasury yields corroborates his concerns. Just a week ago, the borrowing cost of 30-year U.S. Treasuries rose above 5.0%, nearing a 20-year high.

As U.S. Treasury yields rose last week, bipartisan negotiations in Congress were intensifying over a landmark tax reduction bill proposed during Trump's second term, with many fearing it could worsen the U.S. fiscal outlook.

Bond Market Increasingly Concerned About U.S. Debt

As previously mentioned by Wall Street Insight, on May 22, the House passed the bill with a vote of 215 in favor and 214 against. The bill includes extending the tax cuts from Trump's first term and raising the debt ceiling.

It seems that passing the bill in the Senate will not be easy. Senate Republicans have already pledged to make some changes to the version passed by the House, which means there will inevitably be some "tug-of-war" in the Senate.

Market participants are concerned that the measures in the bill could expand the U.S. government's budget deficit, putting greater pressure on the U.S. Treasury market. George Catrambone, Head of Fixed Income and Trading at DWS Americas, stated:

"There is no doubt that the bond market will vote on the terms of the tax reduction bill, and it looks like this president or this Congress will not meaningfully reduce the deficit."

Although the current U.S. Treasury yields of 4% to 5% are close to levels seen before the 2007 financial crisis, and the U.S. has historically paid higher rates, the debt and deficit are now growing exponentially, making everything different. As BNY macro strategist John Velis put it:

"Bond investors are now pricing in a higher risk of fiscal deterioration. They are saying we don't like what is happening, and we won't buy bonds." The data on the fiscal deficit has reinforced the reasons for tension in the bond market. According to data from the Congressional Budget Office, the U.S. public debt accounts for about 100% of the economy's total output. Interest payments alone are expected to reach about $880 billion in 2024, exceeding the defense budget.

The total amount of outstanding U.S. debt has surged from less than $14 trillion at the end of 2016 to nearly $30 trillion, reflecting the tax cuts enacted during Trump's first term and the explosive growth of debt under both Trump and former President Biden during the COVID-19 pandemic