House passes reconciliation bill; all eyes on Treasury market

The House passed the reconciliation bill this morning in a 215-214 party-line vote. The bill, among other things, increases the SALT deduction cap to $40,000 (from $10,000), moves up the Medicaid work requirement to December 2026 from 2029, and increases the debt ceiling by $4 trillion. It is in the Senate’s hands now to accept or to amend, the latter of which it is likely to do. The aim is to have passage of a final bill by July 4.

The Tax Foundation estimates the bill passed by the House will increase long-run GDP by 0.6% and add $3.3 trillion to deficits over the next 10 years.

Passage of the bill by the House has not excited the stock market, partly because it was ultimately expected and had been priced in, but also because the Treasury market doesn’t look all that excited by the news.

The 10-yr note yield jumped two basis points to 4.62%, and the 30-yr bond yield rose four basis points to 5.13%. Viewed in isolation, those aren’t necessarily big moves, but viewed in the context of yesterday’s sell-off and the big jump in rates seen already this month as deficit angst got priced in, they weren’t necessarily comforting moves either, and the equity futures market responded accordingly.

Currently, the S&P 500 futures are down four points and are trading 0.1% below fair value, the Nasdaq 100 futures are up 20 points and are trading 0.1% above fair value, and the Dow Jones Industrial Average futures are down 121 points and are trading 0.3% below fair value.

The weaker state of the equity futures market, which improved some as yields backed off, also reflects some growth concerns tied to the jump in rates, which hasn’t been exclusive to the Treasury market, and contractionary flash manufacturing and services PMI readings for May out of the eurozone and a contraction in Japan’s flash manufacturing PMI.

The preliminary May S&P Global US Manufacturing PMI (prior 50.2) and Services PMI (prior 50.8) will be released and closely watched at 9:45 a.m. ET. They will be followed by the April Existing Home Sales Report (Briefing.com consensus 4.15M; prior 4.02M) at 10:00 a.m. ET.

How the Treasury market absorbs those reports will have a lot to do with how the stock market absorbs those reports. Earlier, the weekly initial and continuing jobless claims report was released, and it contained some reassuring data for initial jobless claims.

Briefly, initial jobless claims for the week ending May 17 decreased by 2,000 to 227,000 (Briefing.com consensus 232,000), while continuing jobless claims for the week ending May 10 increased by 36,000 to 1.903 million.

The key takeaway from the report is that initial jobless claims are running steady at levels that are well below recession-type readings; moreover, this report covered the period in which the survey for the May employment report was conducted and should contribute to expectations that nonfarm payrolls will again show a relatively solid print. 

In other developments, managed care stocks are on the defensive after CMS announced plans to accelerate Medicare Advantage audits, President Trump said he is considering taking Fannie Mae (FNMA) and Freddie Mac (FMCC) public, and oil prices are lower following a Bloomberg report that OPEC+ is considering another production increase for July.

There are a lot of moving parts this morning, but clearly the moving part that matters most is the Treasury market. Where yields go, stocks for the time being are likely to follow in an inverse manner.

The 10-yr note yield is currently down one basis point at 4.59%, while the 30-yr bond yield is up two basis points to 5.11%.

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Originally Posted May 22, 2025 – House passes reconciliation bill; all eyes on Treasury market