The 10-year Treasury yield rose Tuesday after Senate Republicans passed their version of the White House’s gigantic tax-and-spending legislation, threatening to add at least $3 trillion to the federal deficit over the next decade.
The House now has the reins on Trump’s domestic policy package, where it faces an uncertain future amid questions about whether enough lawmakers will vote for it. Some GOP lawmakers have expressed continued concerns over the bill’s impact on the deficit, an aspect of the legislation that has sometimes spooked the bond market.
The benchmark yield advanced 2.5 basis points to 4.251%. The 30-year bond yield was little changed at 4.771%, while the 2-year note yield was up nearly 6 basis points to 3.779%.
One basis point is equal to 0.01%, and yields and prices move inversely.
Bonds may have also been undermined by remarks made by Federal Reserve Chair Jerome Powell addressing the impact of tariffs on U.S. monetary policy.
“In effect we went on hold when we saw the size of the tariffs and essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs,” Powell said at a European Central Bank forum on central banking in Portugal.
Asked if U.S. authorities would have lowered rates again if U.S. tariffs had not been unveiled, Powell said, “I think that’s right.”
“The Fed is concerned that the uptick in inflation expectations reported in recent surveys could make tariff-fueled inflation more persistent than a typical one-off shock to prices,” Bill Adams, chief economist at Comerica, said.
Adams cited the prices paid component of the June Institute for Supply Management survey reported Tuesday, which showed the price index rising to 69.7 from 69.4 in May, with no sign of easing.
“Given the continued large increases in input prices reported in the ISM manufacturing PMI, manufactured goods prices will likely be the major driver of inflation in the second half of 2025,” Adams said.
The rest of the week’s data is highlighted by the June nonfarm payroll report, the key barometer into the health of the labor market, due on Thursday because of the July 4th holiday Friday. An earlier glimpse into the state of U.S. employment comes Wednesday with the release of June ADP private payroll numbers.
Correction: The ISM manufacturing index came in at 49.0. A previous version misstated the reading.
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