The elephant is as good a metaphor as there is for the US government bond market. Its scale, power, memory, emotional intelligence, and tendency to live in complex family groups—just like the broad array of debt instruments—are right on the nose . . . er, trunk.
Yet this week, we saw that the room in which the bond market operates has more than one elephant. The other large mammal in question is the Republican Party, which may be picking a fight with the bond market. Just days after Moody's revoked Washington's AAA rating, the GOP in the House passed Donald Trump's "big, beautiful bill" today. The fact that it will add trillions of dollars to the primary federal deficit has agitated bond investors.
Suffice to say, Treasury Secretary Scott Bessent really has his work cut out as his boss, President Donald Trump, pushes his deficit-bloating bill through the Senate. If Bessent isn't careful, his 3% target for the ratio of the deficit to GDP—less than half what it was in the fourth quarter—will get trampled (chart).
To regain credibility on Washington's fiscal trajectory, Bessent must stop outlays from stampeding faster than tax receipts while the economy is expanding (chart). Obviously, that feat would become even harder in the case of a recession.
