The OBBBA (One Big Beautiful Bill Act) that is currently in the Senate, and the center of the very public Musk/Trump X debate, is getting a LOT of attention this week. Particularly to the tune or headline of something along the lines of “OBBBA will add $3 Trillion to US Deficit". And, Musk alleged in an X post that it would push the US into a recession in the second half of this year. Not what we want to hear.
I’m a markets observer, and in a sense, a reporter. I don’t pretend to be an economist or educator, but after years of doing this, I at least start to operate on “hunches”. And, I also like to pursue areas that seem to be fuzzy in clarity to us less versed in financial or economic speak. I’ll get to a few of our more standard topics today, like jobs data, manufacturing data, and then truckload rates, but first I want to break down some topics you can probably expect to hear a lot about if you have not already. I wanted to better understand the correlations between the US debt, interest rates, and bond yields, because if you read much into the proposed tax bill, it all talks about the increased costs (interest rates aka yields) to borrow money (loans aka bonds) due to the risk associated with our rising deficit (the US’ total debt). So to break this down...
U.S. Debt - The U.S. borrows money from other nations by selling Treasury bonds (IOUs from the government). Every time the government spends more than it collects in taxes, it adds to the national debt.
Interest Rates (Set by the Fed) - The Federal Reserve sets the federal funds rate, which influences all borrowing costs in the economy. When the Fed raises rates, borrowing becomes more expensive (including for the government). When the Fed lowers rates, borrowing gets cheaper.
Bond Yields - A bond yield is the return investors get for lending money to the government. When demand for U.S. Treasuries is high, yields go down (because prices go up). When demand is low, yields go up (prices fall, the government must offer more return to attract buyers).
How they are linked:
More Debt = More Bonds → The government issues more bonds to cover spending. → If there's too much supply and not enough demand, yields rise.
Higher Interest Rates = Higher Yields → When the risk associated with lending money is higher, new bonds must offer higher yields to compete with other investments and make the risk worth the reward. → This increases the cost of borrowing for the government.
Longer term bond yields are not just determined by the FED, but by a consideration of many factors that price in risk for other countries to lend (Matthew Klein covers this here).
Higher Yields = Higher Cost to Service Debt → If yields rise, the U.S. pays more interest on new debt. → That makes the national debt grow even faster because interest payments increase.
For example, the OBBBA is believed to be about a $2.4T “increase” (we will get to that), but with interest factored in long term they put it more at $3T.
Imagine the U.S. as someone with a giant credit card. The more they borrow, the more they owe. If interest rates go up, their monthly payments get bigger. If lenders aren’t eager to lend, they must offer better rewards (yields) to attract them. Like how if you have a bad credit score you tend to receive higher interest rate terms relative to your risk as a repayor.
So what have yields been doing? Moving up. It’s been a hot topic and one of some concerns to many. However, several financial market analysts I’ve come across this month argue that the yield rates rising was overdue, and that we are finally getting back to the place we should have been before the 2008 financial crisis and the pandemic derailed yields. This is also factoring in the US’s rapid increase in spending over the last decade. The US deficit has increased dramatically, which should be a plenty good reason for the bonds to have followed suit. Economic uncertainty and geopolitical tensions and events drive risk as well, and the FED sustained higher rates can also influence longer term yields.
10-Year Treasury Yield: As of June 5, 2025, the yield stands at 4.40%, up from 4.37% the previous day. This is higher than the long-term average of 4.25%
2-Year Treasury Yield: Currently at 4.02%, indicating a relatively flatter yield curve compared to earlier periods
30-Year Treasury Yield: Recently reached 4.92%, nearing multi-decade highs
Elevated yields increase the cost of servicing government debt, impacting fiscal policy and budgetary considerations.
Speaking of our nation’s budget. What did we honestly expect? It seems like quite a lot. Spending has been increasing rapidly for years, much of it arguably wasteful and unnecessary (that both sides of the aisle can agree on, even if the expenses they believe to be so vary). The problem is, politicians are elected on promises, and usually those promises include things like: lower taxes, increased services and benefits, better programs, better paying jobs, etc. None of these promises are things that should make the government money, at least in the short term. Which is another issue, politicians only have short terms to prove their value, presidents have 4 years to show results of promises kept, not decades to orchestrate complex economic improvement plans.
Which brings us to the OBBBA, and we have to discuss the 2017 Tax Cuts and Jobs Act (TCJA) jointly. The TCJA is set to expire, this is important because the “baseline” for the current budget that is being used to compare against the OBBBA, is factoring in the expiration of the TCJA. In other words, if it was to expire, there would be severe increases for personal and corporate taxes. It was never likely that either administration would have allowed this to happen. So, estimates of the OBBBA are saying that it costs us money by not reversing the expiration of the TCJA that was going to make us (the gov) lots of money through increased taxes. The OBBBA will extend the TCJA, and instead of comparing it to the current environment of the TCJA in effect, it seems some analysis compares it to their expiration. Which isn’t necessarily an inaccurate way to measure it, but it seems entirely misleading at this point as nobody would prefer the TCJA to expire, or had actually believed it would.
According to economist Matthew Klein, the proposed bill actually is far less than most predictions were expecting, and after factoring in tariff revenues, might even be better than the “current” budget.
“The main surprise, to the extent that there was one, was the severity of the spending cuts, although some of them may be moderated by the Senate. In fact, according to the nonpartisan Committee for a Responsible Federal Budget (CRFB), the current budget plan adds far less to the debt stock relative to the “current law” baseline over the next ten years than they had expected based on pre-election campaign promises. The CRFB’s “central” projection as of the end of October 2024 was that the Harris agenda would generate additional borrowing of $4 trillion in 2026-2035 relative to “current law” and that the Trump agenda would generate $7.8 trillion in extra debt. Their current estimate of the bill just passed is that it would add only $3.1 trillion in incremental debt. Add in reasonable estimates of the revenue impact of tariffs and it is possible that the new budget could lead to almost no incremental increase in federal debt issuance compared to the “current law” baseline!”
Is this a win? No, not really. It does nothing to LOWER our existing deficit, which appears to be what is causing the rift between Elon and Donald. Elon argues that it still is too bloated, and not enough spending cuts were included.
The last thing I felt I needed to really grasp to better understand all of this bond yield talk was this:
Bond Prices and Yields Move Inversely.
More demand = higher bond price = lower yield Less demand = lower bond price = higher yield
And I do best when I can see tangible examples of these concepts, so here we are:
In 2020, U.S. bond yields fell sharply as the COVID-19 pandemic triggered a global flight to safety. Investors, fearing a deep recession, poured into U.S. Treasuries, which pushed prices up and yields down. At the same time, the Federal Reserve cut interest rates to near zero and launched large-scale quantitative easing (QE) to stabilize markets and support the economy. Inflation expectations plummeted as economic activity collapsed, which further reinforced demand for safe assets. As a result, the 10-year Treasury yield dropped to historic lows, falling below 0.6% by mid-2020.
In contrast, by 2022 and into 2023, bond yields surged due to an entirely different set of forces. Inflation had spiked, driven by supply chain disruptions, strong consumer demand, and surging energy prices. To fight this, the Fed aggressively raised interest rates and began quantitative tightening (QT), reducing its bond holdings instead of expanding them. At the same time, the federal government continued to run large deficits, flooding the market with new Treasury issuance. Unlike in 2020, investors now demanded higher yields to compensate for inflation and the growing supply of debt. As a result, the 10-year yield climbed above 4.5% by late 2023.
And since inflation, interest rates, and government spending plans have changed little since late 2023, here we are.
I hope that was helpful to anyone else who wanted to better understand those dynamics! Now, moving on to a few other macroeconomic data points that have relevance to our freight market.
Jan Groen, an economist I cite often, provided a high level summary of the most recent PCE, wage growth, savings and consumer spending data.
His key takeaways were:
"The central tendency measures of PCE inflation firmed up over the month and remain 2.6%-2.8% core PCE inflation range on a six-month basis.
Personal income growth out of wages and salaries was revised up for Q4 and Q1 and accelerated in April. This meant that household wage income now is growing somewhat above the pace that’s consistent with 2% PCE inflation over the medium-term.
The stock of excess savings has NOT run out and continues to be a tailwind for consumption. Between March and April, it increased by around $1.3 billion and equaled about $298 billion in April.
Headline consumption growth on a three-month basis reaccelerated well above its underlying spending growth pace in April but slowed notably over the month. Real spending on durable goods fell and services consumption grew over the month. The annual trend in real spending picked up as well, so one should not expect dramatic downshifts in the second half of the year.
While consumption spending slowed as households added to their precautionary savings, stronger-than-expected wage income growth means this will not counteract elevated inflation and trends in underlying inflation still point to an above-target medium-term core inflation pace. Given this the Fed will likely abstain from further rates cuts for quite a while, as it gauges how much supply-side disruptions owing to trade policy could derail the inflation process through elevated inflation expectations."
And, as of 30 minutes before this publication I received his latest updates to the newest labor data, so adding here:
The CBO-implied breakeven pace needed to keep the unemployment rate at 4.2% is around 193,000 persons in May, down from about 200,000 in April as well as its 224,000 persons peak in December. Comparing this to the three-month average payrolls growth rate (orange vs. gray lines in the above chart) suggests that current job growth trends are still lagging this more realistic breakeven pace, with the monthly increase (139,000) also remaining below it. So, there’s likely remains upside risks to the unemployment rate over the near-term.
I found Jan's note on a decrease in spending on durable goods to be interesting given Cathy’s continued coverage of corporate quarterly earnings’ statements. Many of them continue to mention their efforts to reduce their costs of production, and absorb tariff or price increases in order to prevent further demand weakening. At least so far, tariffs for consumer goods seem to have had minimal impacts on overall inflation. But the road ahead is still uncertain. Especially for goods that are reliant on steel and aluminum, as those tariffs were raised on June 4th from 25 to 50%.
Manufacturing had some slight improvements when we look at May data vs. April, but nothing too encouraging at this point. Jason Miller provided his commentary and the below graph:
While momentum for new orders for manufacturers improved in May from April's dismal reading across the five Federal Reserve Bank that report such data, May was still in contraction on average. Moreover, readings are nowhere near the +10 we would want to see in cases where we have a bull market in the dry van sector. Metal tariffs will likely worsen this given the tariffs punish the many for the benefits of the few.
And lastly, we expect interest rates to hold steady as the labor market hasn’t shown signs of weakening with confidence yet, although some upside risks may be building.
U.S. government borrowing costs climbed as investors anticipated the Federal Reserve would keep interest rates higher for longer, making it less attractive to hold U.S. debt… Friday’s report points to “a labor market that is steady but cautious in the face of ongoing uncertainty,” analysts with ManpowerGroup, an employment agency, said in a note. “There are signs of deceleration with hiring momentum slowing across the board.” Analysts at Capital Economics called the May jobs report "not as good as it looks." Still, they wrote in a note Friday, "it shows that tariffs are having little negative impact" and added that the Federal Reserve is likely to continue holding interest rates steady "while it assesses the effects of policy changes on the economy."
A huge thank you to BiggerPicture for sponsoring this month's newsletter! BiggerPicture is focused on helping shippers, brokers, and carriers maximize their operational productivity, by reducing the time spent scheduling appointments by an average of 80%. Achieve full ROI in 3 months or less, and unlock new growth potential by shifting your most valuable resources (your peoples' time) where it can make the biggest impact.
I wish I had some new news, but as of right now, the most notable thing to me remains that very sizeable gap between spot and contract. Q3 will see the start of RFP prep time, and a time many shippers will spend doing their best to gauge the market and create a budget and pricing strategy for their upcoming Q4 RFPs.
Thank you as always to Ken Adamo for supplying the most recent rate charts using DAT rate data.
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