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The bond market is reacting sharply to a newly proposed tax package, which looks to add substantial new debt without offsetting revenue. Investors are increasingly concerned that the current policy direction, a mix of sweeping tax cuts and rising trade protectionism, will require more government borrowing than the market can comfortably absorb. Since the U.S. finances deficit spending by issuing Treasury bonds, that means a flood of new supply is on the way. As confidence in fiscal restraint wanes, investors are demanding higher yields to hold Treasuries, a sign that markets are reassessing the risk profile of U.S. debt. Volatility has surged, demand at auctions has weakened, and long-term yields are climbing.

That repricing has real economic consequences. Higher yields translate into more expensive mortgages, business loans, and consumer credit, tightening financial conditions even before the Fed takes further action. They also increase the government’s interest burden, which is already straining the federal budget and crowding out other spending priorities. If bond markets continue to treat U.S. debt as riskier, the fallout won’t just be felt in D.C., it will ripple across households, companies, and capital markets.