Senate's vote-a-rama continues

What matters in U.S. and global markets today

By Dhara Ranasinghe, Editor, Financial Markets, EMEA

All eyes remain focused on Washington, with Senate Republicans still locked in a marathon session, known as "vote-a-rama", as they try to pass a contentious tax cut and spending bill that could add trillions of dollars to the country's already high debt load.

This hasn't helped the dollar, which is languishing at its lowest levels against the euro in almost four years, as the fiscal bill keeps debt worries front and center for global investors.

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Senators are voting in a marathon session featuring a series of amendments by Republicans and the minority Democrats, part of the arcane process Republicans are using to bypass Senate rules that normally require 60 of the chamber's 100 members to agree on legislation.

It is unclear how long the voting, which started on Monday, will last.

What's interesting is how financial markets are reacting to developments on the Hill. 

As mentioned above, the latest signs of U.S. policy uncertainty and concern about ever-rising deficits are weighing on the dollar.

Now look at bond markets, which have been notably quiet in the face of fiscal worries. 

The nonpartisan Congressional Budget Office released its assessment on Sunday of the bill's hit to the $36.2 trillion U.S. debt pile. The Senate version is estimated to cost $3.3 trillion, $800 billion more than the version passed last month in the House of Representatives.

So, where have the so-called bond vigilantes gone?

One explanation is that attention, for now, has returned to inflation and growing expectations that Federal Reserve interest rate cuts will come sooner rather than later.

And on that point, U.S. President Donald Trump on Monday continued to pressure Fed chief Jerome Powell to cut rates. 

Goldman Sachs reckons the Fed will deliver three rate cuts this year. 

With markets pricing in roughly two quarter-point rate cuts by year-end, bond investors, it appears, are happy with U.S. 10-year yields at around 4.2% - the lowest in around two months. 

The other point for bond markets, with regards to the bill, is that even if it is passed by Trump's July 4 deadline, a debt ceiling increase in the bill does not become an issue until later in the summer.

Generally upbeat sentiment in stock markets meanwhile - note the S&P 500 and Nasdaq hit record closing highs on Monday - could be put to the test by signs that efforts to secure trade deals may be stalling.

Trump expressed frustration with U.S.-Japan trade negotiations on Monday, as Treasury Secretary Scott Bessent warned that countries could be notified of sharply higher tariffs as a July 9 deadline approaches despite good-faith negotiations.