How Trump Can Calm The Bond Markets...
Calming The Bond Market
| Why Yields Have a “Fiscal Risk Premium” Right Now
Moody’s Aa1 downgrade (May 16) cited a swollen primary deficit and fast‑rising net‑interest costs.
Dealers estimate ~25 bp of the 10‑year yield is pure “fiscal overhang.” Trim $1 T+ off the 10‑yr budget window and half that premium likely fades.
The easiest way, politically, is to carve fat, not core benefits or tax pledges (“no tax on tips”).
Mission: find $1 Trillion in credible offsets without betraying campaign promises or MAGA priorities.
| Pentagon Efficiencies Without Touching War‑Fighter Icons
| Lever | 10‑yr savings | MAGA framing | Source |
|---|---|---|---|
| Slow F‑35 production 10 %; cancel Block‑4 retrofit for early lots | $60‑80 B | “Stop fueling a $1.6 T sustainment monster” | GAO 24‑106703 U.S. Government Accountability Office |
| Retire Littoral Combat Ships early; mothball B‑1Bs | $25 B | “Scrap Navy money pits, fund hypersonics” | CBO FYDP report Congressional Budget Office |
| Repatriate 20 k troops from CENTCOM/AFRICOM & end OCO tail | $55 B | “No more endless‑war garrisons” | CBO FYDP & DoD budget tables Congressional Budget Office |
| Zero DoD climate‑resilience/DEI accounts | $15 B | “Cut woke, keep war‑fighting” | CRS tallies Congress.gov |
| 2‑yr freeze on GS‑13+ Pentagon civilians | $18 B | “Bureaucracy diet—troops exempt” | OMB baseline |
Defense subtotal: ≈ $170 Billion
(A‑10 stays flying; savings come from programs MAGA voters consider bloat.)
| Health Entitlements: Hit Over‑payments, Not Seniors
| Policy | 10‑yr savings | Populist sell | Source |
|---|---|---|---|
| Trim Medicare Advantage (MA) benchmarks by 10 %, start 2027 | $390‑490 B | “Stop insurers’ MA gravy train” | CBO option 58626 Congressional Budget Office |
| Double IRA drug‑negotiation cap to 40 drugs/yr | $160 B | “Lower Big Pharma prices faster” | CBO option 60900 Congressional Budget Office |
| Medicaid work requirement (80 hrs/mo, ages 19‑55) | $100‑135 B | “Able‑bodied adults should work” | CBO estimates HR 2811 Congressional Budget Office |
| Cap federal share of Emergency Medicaid at 50 % | $25‑30 B | “States cover their own ER bills” | NYP op‑ed cites CBO figures New York Post |
Health subtotal: ≈ $700 Billion
Targeted Social‑Security & Other Mandatory Tweaks
| Lever | 10‑yr savings | Talking point |
|---|---|---|
| Chained‑CPI for COLA only above $150 k lifetime benefit | $44 B | “Millionaires get slimmer raises, grandma untouched.” |
| Nation‑wide E‑Verify + stiff employer fines (H.R. 2 model) | –$21 B (saver) | “Stop job magnets, collect fines.” Congressional Budget Office |
| End new enrollment for VA Priority 7‑8 | $60 B | “Focus VA on wounded warriors.” |
| 1 % remittance fee for non‑SSN senders | $12‑15 B | “User fee on cash leaving the country.” |
Subtotal: ≈ $100 Billion
| Combined Impact
| Bucket | Low | High |
|---|---|---|
| Defense efficiencies | $150 B | $180 B |
| Health entitlement trims | $650 B | $825 B |
| Soc. Sec. & misc. mandatory | $90 B | $120 B |
| Total (10 yrs) | ≈ $890 B | ≈ $1.13 T |
That’s one‑third of the $3 Trillion hole in the “Big Beautiful Deal.” Pair it with populist pay‑fors on the tax side (e.g., tripling the buyback tax, closing carried interest) and you can get the deficit math basically flat without touching the A‑10, Social‑Security checks, or Trump’s “no‑tax‑on‑tips” pledge.
| How Trump Can Pitch It
“Cut the bloat, not the brave.” We rethink failing weapons (F‑35 sustainment, Littoral Combat Ships) and slash woke add‑ons, while keeping frontline icons (A‑10, carriers, missile defense) safe.
“Take on insurance & pharma, not grandma.” MA over‑payments and drug‑pricing loopholes are corporate subsidies—Trump voters cheer when Wall Street or Big Pharma takes the haircut.
“Work for benefits.” Medicaid work rules poll above 60 % nationwide.
“Make lawbreakers, not wait‑staff, pay.” E‑Verify fines, remittance fees, and buyback taxes offset the headline tax cuts.
| Why Bond Markets Would Relax
Dealers estimate that knocking $1 Trillion off the 10‑year window and lengthening Treasury maturities (Patriot 50‑yr bonds) could shave 15‑20 bp off the 10‑yr yield spread attributed to fiscal fears.
Ratings agencies reward rule‑based caps (e.g., MA cuts baked into statute, automatic drug‑list expansion).
Showing bipartisan votes for even $1 Trillion of real savings breaks the narrative that Washington can’t touch mandatory spending at all.
| In Case This Doesn't Happen
- Bullish for bitcoin and gold. We have a trade teed up for later today in the Portfolio Armor trading Substack related to this, a gold doré play. Feel free to subscribe to our trading Substack/occasional email mail list at the bottom of this post if you'd like a heads up when we place it. Update: just sent the trade alert out. You can click on the image below to see it (it's a man pouring gold doré painted in Gustave Doré-style).
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- Consider hedging. The Portfolio Armor iPhone app can help you find the least expensive hedge that fits your risk tolerance and time frame. You can download it by aiming your iPhone camera at the QR code below (or by tapping here, if you are reading this on your iPhone). If you don't have an iPhone, all of its capabilities and more are available on the Portfolio Armor website.
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Think of stocks you want to buy during a correction. You might consider our app's Daily Top Ten Names. Here's how our top ten names from March 31st had performed as of Monday's close.
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