Bond Markets Keep Pressure on Trump Administration as Deficit Fears Resurface

The uneasy truce between the Trump administration and U.S. bond investors is showing signs of strain, as concerns over persistent deficits and long-term debt levels resurface. After the April bond market sell-off triggered by “Liberation Day” tariffs, policymakers have worked to calm markets through cautious messaging and strategic debt management. But tensions flared again on Nov. 5, when the Treasury signaled possible increases in long-term debt issuance on the same day the Supreme Court heard arguments on the legality of Trump’s sweeping tariffs — prompting one of the sharpest jumps in 10-year yields in months.

Behind the recent period of lower volatility, investors say a quiet standoff remains underway between bondholders wary of mounting fiscal pressures and an administration determined to keep borrowing costs in check. Treasury Secretary Scott Bessent has emphasized efforts to restrain yields, leaning on tools such as expanded bond buybacks, heavier reliance on short-term Treasury bills, and closer consultation with major market participants. While these steps have temporarily soothed nerves — and helped pull down benchmark yields — analysts warn that term premiums are creeping higher again as doubts persist about deficit financing and the sustainability of policy choices.

Market strategists caution that the current calm rests on a fragile balance of subdued inflation expectations, steady demand for short-dated debt, and confidence that the administration will avoid provoking investors again. Any resurgence in inflation, renewed tariff shocks, or shift in Federal Reserve policy could reignite volatility and embolden so-called “bond vigilantes,” who punish fiscal laxity by driving yields higher. For now, investors say, the administration has bought time — but the underlying risks to the bond market’s fragile peace remain unresolved.

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