Bond Tantrum at Its Peak?

What happened?

This morning, the House of Representatives passed the "Big Beautiful" tax bill by a one-vote majority. The Senate will consider it in the coming weeks and then turn it into law. In response, bond markets experienced another selloff, pushing the 30-year real rate to multi-decade highs. However, there are some signs that the bond market rout may have reached its peak.

Why could that be the case?

• Bond yields are reflexive: Very high real rates will likely slow economic activity going forward, creating a counterbalance to the stimulative tax cuts.
• Signs of a likely US slowdown: The Supreme Court upheld several of Trump's deportation initiatives, paving the way for large-scale deportations that will reduce labor and consumer demand in the economy.

What’s the counterpoint?

• The deficit will remain enormous: Although it is possible for the market to rebound from panic levels, the deficit will remain at record levels for a peacetime economy. There is still no structural reason to hold long-term bonds.
• Deportations may cease once the industry complains: As with tariffs, Trump may be receptive to feedback and reduce his deportation efforts when corporations complain about the labor supply.