Will Investors Push Back Against Trump's Massive Borrowing Plans?

As President-elect Donald Trump gears up for a new term, investors are grappling with the potential impact of his ambitious economic agenda on the U.S. budget deficit and public debt. Trump's proposals, including sweeping tariffs and big tax cuts, have raised concerns about surging fiscal deficits and higher inflation, leading to a sell-off in bonds and a surge in yields (NPR, 2024).



Bond investors, often referred to as "bond vigilantes," have reacted with concern to Trump's economic policies, as they expect his proposals to lead to higher inflation and fiscal deficits. This concern is reflected in the drop in bond prices and the surge in yields since his election (NPR, 2024). When bond prices fall, their yields rise, as investors demand more interest as compensation. This increase in yields makes it more expensive for the U.S. government to borrow money, as investors will demand higher interest payments (NPR, 2024).



The U.S. bond market is the largest in the world, and all kinds of interest rates are tied to how the market performs. When bond yields rise, it can hurt the U.S. by making it much more expensive for the government to borrow money, and it affects regular Americans by jacking up the cost of loans, from mortgages to car payments (NPR, 2024). If bond prices are in freefall or drop for a prolonged time, it can lead to alarm bells going off and the sell-off can quickly spread, potentially bringing down governments. This gives bond investors big influence, and they can use it to try to hold governments accountable and force them to reverse their economic policies (NPR, 2024).



International investors, such as Japan and China, the largest foreign Treasury holders, have already shown signs of hesitation. They reduced their positions throughout 2024, and foreign investors sold $50 billion in long-term Treasuries in December alone, the highest amount since May 2021 (Financial Times, 2025). This could indicate a lack of confidence in the U.S. fiscal policies and a potential reduction in demand for U.S. Treasury bonds.

Trump's proposed tax cuts and increased spending could have significant consequences on the U.S. budget deficit and public debt. The Committee for a Responsible Federal Budget estimates that the changes could add $2.8 trillion to the deficit through 2034 (Financial Times, 2025). Higher deficits would likely result in an increase in public debt, as the government borrows more to cover the shortfall. The U.S. federal debt could reach more than $50 trillion by the middle of the next decade, raising concerns about government spending and economic growth (Morgan Stanley, 2025).

Investors in the bond market may react with concern to Trump's economic policies, as they worry about the potential for higher inflation and surging fiscal deficits. This could lead to a sell-off in bonds, making it more expensive for the government to borrow money and increasing the cost of loans for average Americans. Deregulation and the fiscal boost of tax cuts are broadly positive for stocks, while immigration policy shifts are mostly moderate unless they distort labor supply. However, bonds face headwinds from many parts of the economic agenda, although the effect of tariff proposals on bonds could be more neutral depending on whether any resulting concerns about growth dominate inflation concerns, or vice versa (Morgan Stanley, 2025).



In conclusion, investors may push back against Trump's massive borrowing plans, leading to higher bond yields and borrowing costs. This is supported by the concerns of bond vigilantes, the impact on other interest rates, the potential for bond market turmoil, and the actions of foreign investors. Trump's proposed tax cuts and increased spending could lead to a significant increase in the U.S. budget deficit and public debt, which could have implications for investors in the bond and stock markets, as well as international investors.