Friends of Manufacturing

Trump Tax Plan Is Only Bearish for Bonds in the Short Term

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Stop me if you’ve heard this one before, but there is something in economics called the law of supply and demand. It goes something like this: When supply rises, prices should come down. So, bond investors should be really worried about the U.S. government issuing lots more debt to make up for the lost revenue from the Trump administration’s proposed tax cuts, right? Well, maybe not.

Let’s start at the beginning. After numerous fits and starts, the White House has unveiled a starting point for tax reform. Unlike the administration’s efforts in other areas -- health care, immigration, the border wall -- this looks like it has some legs. After all, there’s little that voters like more than lower taxes. The trouble, at least theoretically for bondholders, is that the plan as it stands is likely to boost a budget deficit that was already bound to explode.

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