We believe inflation and interest rate volatility are the primary “winners” following the passage of the $3.6 trillion One Big Beautiful Bill. Over the next decade, on an annualized basis, US debt is expected to grow 7.7 percent, US GDP will likely grow 0.5 percent (source: CBO), and debt/GDP is estimated to rise to 127% (source: Tax Foundation). Nobody seems to care about the national debt for now. Credit Default Swap (CDS) spreads on US Treasurys have declined 14 basis points in the past 2 months (source: Bloomberg).
RiskBridge expects 2026 inflation to reach 3.0-2.25%, creating potential constraints on the administration’s currency and interest rate policies. Rising inflation may further devalue the USD, making Treasurys less attractive to foreign buyers and pushing yields higher.
In the coming weeks, the Treasury will begin funding $5 trillion of new debt ceiling capacity with T-bills (not notes). In the long term, issuing T-bills to finance new and existing debt may be the last resort before the US is forced into some form of debt restructuring (i.e., a debt swap).
The chart below (source: The Economist) shows the deficit impact of the bill. The biggest impact comes from making the 2017 tax cuts permanent. Other breaks include tax breaks for tips and overtime, and raising federal tax relief for payment of state and local taxes.
While we expect volatility over the coming quarters, the U.S. economy should avoid a recession, given corporate profit growth is still positive y/y. Fiscal boosts are coming, especially for capex, and monetary policy is also expected to ease.
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