• The bill will cause US debt to escalate over the next decade
• The cost of servicing this debt could materially impact the US's growth outlook
• Investors should consider broadening their fixed income exposure beyond US Treasuries

It’s been a tense month. Republican lawmakers debating President Trump’s megabill have not all been in favour. Elon Musk called it “utterly insane and destructive”.

Despite such strong words, President Trump’s last-minute concessions were enough to get the bill passed, albeit by the thinnest of margins. It was signed into law last Friday, marking a new era of indebtedness for the US government.

Now that there is no going back, here are some highlights on what this could mean for the US economy and US assets:

• Unprecedented borrowings
  The current US federal debt is US$36.21 trillion. This bill’s package of tax and spending cuts will add around US$3 trillion by 2034 and another US$9 trillion by 2055. If temporary provisions become permanent, this piles on a further debt of US$4 trillion, bringing the grand total to US$16 trillion over 30 years.
  
  The Big Beautiful Bill outweighs any previous stimulus packages, including those introduced to deal with Covid, the 2022 inflation crisis and the 2008 financial crisis.
  
  
• New economic stresses
  One way economists put debt numbers into context is to look at the debt-to-GDP ratio. This measures a country’s ability to meet its debt, and a ratio of 100 percent suggests that the country’s economic output is equal to its debt burden. The last time this was the case in the US was 2013.
  
  Since then, the ratio has crept up steadily and reached 123 percent last year, higher than many other large nations. Should the bill’s tax provisions become permanent, it is estimated that the US’s debt-to-GDP ratio will rise further to 186 percent by 2055, putting it among the highest in the world.
  
  Fig 1: Government debt as percent of GDP, 2024
  
  
  
  Source: IMF
  
  Maintaining such high debt levels has the potential to hurt the US economy. In 2024, it cost the US government US$1.1 trillion to service this debt, diverting money away from more useful economic programmes. For example, this amount is about four times more than the government spent on education that year.
  
  The bill worsens this situation considerably. The Committee for a Responsible Federal Budget, a non-partisan thinktank, estimates that the bill will cause debt repayment costs to rise by two thirds to US$1.8 trillion over the next decade.
  
  
• Creditworthiness matters
  The above scenario does not take into account a prolonged spike in interest rates. Although the US national debt has increased every year over the past 10 years, interest rates have remained fairly low. This is because global investors still view US Treasuries as a safe haven with very little (if not zero) risk of default even in a crisis.
  
  However, there is a limit to how much US debt can continue to rise before investors get nervous. Moody’s became the last of the three big agencies to downgrade the US’s top Aaa rating in May 2025. The company explained that “The US general government interest burden, which takes into account federal, state and local debt, absorbed 12 percent of revenue in 2024, compared to 1.6 percent for Aaa-rated sovereigns. While we recognize the US's significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics.”
  
  While the bill will not have an immediate impact on the US’s creditworthiness, sustained rises in Treasury yields could spark a vicious cycle over the longer term. Higher yields make the debt servicing even more expensive, which will further diminish investor confidence, which in turn pushes yields higher. Investors will be closely tracking the bond markets for any signs of weakening.
  
  
• US diversification, not divestment
  President Trump’s surprise announcement yesterday, ahead of the expiry of the tariffs pause this week, raises the tariff rate on several countries, but extends the pause to 1 August. It is possible that these, plus the tariffs announced earlier, will help to address some of the debt resulting from the bill, but are also likely to increase inflationary pressures over the medium term.
  
  All in all, a US recession is not our base case for this year. However, we think that its likelihood remains elevated, and the medium-term outlook for US markets continues to be marked by significant uncertainty. As such, we recommend a neutral allocation between equities and fixed income. This positions investors to participate in market upside if growth persists, while also offering some protection should conditions deteriorate.
  
  That said, the longer-term picture seems to be one of a changing world order. The status of US assets as “exceptional” and therefore worthy of strong demand despite high valuations, seems to be on the wane. While we would not expect a large scale investment shift away from the US in the near term, there is good reason to prepare for a slow but steady trend of global diversification. This is especially true of Treasury holdings, given the US’s precarious debt situation, with gold, European and Asian bonds and short-term credits likely to benefit instead.