Big moves may be coming to global markets. Analysts are watching closely as US President Donald Trump prepares to push for an extension of the 2017 tax cuts. However, Trump's "big, beautiful" tax bill could stir up a powerful storm in the US Treasury market.

According to the Tax Foundation, a nonpartisan tax research organization, the proposed legislation would add $4 trillion to the US budget deficit over the next decade. For now, progress has stalled amid divisions within the Republican Party. Nevertheless, experts believe the bill will pass by the end of 2025. This is unsettling news for bond investors who are already concerned about the sustainability of federal spending.

Investor sentiment in the bond market is currently relatively composed. In May, yields dipped amid shifting rate expectations and cooling inflation. However, this calm may be short-lived.

According to Yardeni Research, once the tax bill gains traction, 10-year US Treasury yields could spike to 5%, reaching a psychologically critical level that often triggers major sell-offs in the equity market.

ING's currency strategists share this view, predicting a return to 5% yields as the bill moves forward. Peter Berezin, chief global strategist at BCA Research, warns that the bill carries a 30% probability of triggering a "nightmare scenario" in the bond market once passed. In this case, 10-year yields could exceed 6%, causing a sharp decline in demand for Treasuries. This would prompt the Federal Reserve to step in and purchase government debt to keep funding stable.

Investors are already on edge over two key factors: federal spending and inflation. The ballooning national debt raises doubts about the government's ability to meet its obligations, undermining demand for US bonds. Meanwhile, persistently high inflation tends to drive interest rates higher, making debt servicing more expensive and eroding confidence in Treasury securities. In 2024 alone, the US government spent $881 billion on interest payments.

Against this backdrop, many analysts believe that Trump will be forced to revise elements of the bill to avoid sparking a confrontation with the so-called "bond vigilantes." The president himself has a stake in maintaining low rates and stable Treasury auctions. Otherwise, weaker demand could push yields into territory that would threaten the broader economy.