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President Donald Trump has unveiled his sweeping new legislative proposal, the “One Big Beautiful Bill”. While his allies have praised it as a bold reimagining of American fiscal policy, the bond market recoiled. The bill, which proposes nearly US$5 trillion in tax cuts over the next decade with limited offsets, has reignited a fierce debate about the sustainability of US fiscal policy at a time when borrowing costs are soaring. ABSI this week explores why this bill is a big, beautiful disaster. 

Headlining the plan are permanent extensions to the 2017 Trump Tax Cuts and Jobs Act, election promises for the elimination of federal taxes on tips and overtime, generous family incentives through so-called “MAGA accounts,” and dramatically expanded SALT deductions. While it does propose some cuts to spending, in the order of US$1.5 trillion, they don’t go far enough to offset the spending, resulting in an estimated US$5.2 trillion increase in the national debt over 10 years if enacted. Moreover, the spending is front-loaded while the cuts are back-loaded, which projects the annual fiscal deficit to be US$2.5 trillion this year.

Source: X

Unsurprisingly, the clearest signal of blowback and distress to the proposed fiscal spending lies in the US Treasury market. Since the bill’s advancement through the House Budget Committee, yields on long-term government debt have surged. The 30-year Treasury yield recently hit 5%, its highest level in years. To put it in astonishing context, investors are now demanding a higher risk premium on US debt than on Greek government debt, which is yielding about 4.2% on their 30-year.  

That inversion is more than symbolic. It’s a flashing red light from global investors who, despite the US dollar’s reserve currency status, are demanding higher premiums to lend money to Washington. It suggests rising concerns that America’s debt trajectory is quickly becoming unanchored. This was highlighted by credit rating agency Moody’s, which last week downgraded US debt from Aaa to Aa1. 

The timing couldn’t be worse. In 2025 alone, over US$9 trillion in US debt is set to mature. That means it must be refinanced at today’s much higher rates. As a result, the Congressional Budget Office projects interest payments on the debt will exceed US$950 billion this year and could soon be the largest single line item in the federal budget, overtaking defence and Medicare.

Source: World Government Bonds

The recent reaction in US bond markets has drawn inevitable comparisons to the UK’s 2022 fiscal fiasco. Then, Prime Minister Liz Truss introduced a mini-budget filled with unfunded tax cuts that rattled gilt markets, tanked the British pound, and forced the Bank of England to intervene. Within weeks, Truss was out of office, her program scrapped.

While the US is not the UK, and certainly not Greece, there are clear parallels. In both cases, a populist economic agenda ran into the cold, hard reality of financial markets. Investors may tolerate large deficits for a while, but once confidence erodes, the repricing is swift and painful.

The fact that investors now view US long-term debt as riskier than Greece’s is a stunning reversal. Greece, after all, was the epicentre of the European sovereign debt crisis in 2011, a time when the global financial system teetered on the brink.

Is the U.S. now on the cusp of its own sovereign debt crisis?

No, but the trajectory needs to change.

While the warning signs are serious, a full-blown sovereign debt crisis remains unlikely in the short term. That’s largely because the U.S. still holds several crucial advantages:

• Monetary Sovereignty: Unlike Eurozone nations, the US issues debt in its own currency and has a central bank—the Federal Reserve—that can backstop the Treasury market if needed.
  
  
• Global Reserve Currency: The US dollar remains the backbone of global finance, ensuring ongoing demand for Treasuries, even during turbulent periods.
  
  
• Market Liquidity and Institutional Trust: The US bond market is the most liquid in the world, and despite political dysfunction, its institutions are still considered fundamentally stable.
  
  

These features insulate the US from the kinds of sudden funding crises that plagued Greece, Portugal, and others during Europe’s 2011 sovereign debt meltdown. However, insulation is not immunity.

The Big Beautiful Bill may never pass in its current form, but the market’s reaction to it has delivered a stark message: the era of free money is over. With the Federal Reserve holding rates higher for longer to combat inflation, the days of ultra-low borrowing costs are gone. That means deficits matter again, and markets are watching closely.

The current moment should serve as a wake-up call, not a panic. America is not Greece. But if it continues down a path of unchecked fiscal expansion, it could find itself facing a credibility crisis that even its reserve currency status won’t shield it from.

The “Big Beautiful Bill” is less a piece of legislation than it is a litmus test. It asks whether financial markets will tolerate a dramatic fiscal pivot without meaningful offsets. So far, the answer is a resounding no. America still has time to course-correct. But the margin for error is shrinking. The bond market is sending a message and policymakers would be wise to listen.

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