Trump Would 'Lead The Charge' To Scrap Debt Ceiling: 30-Year Treasury Bonds Slide To 2024 Lows, Stocks Cut Gains

President-elect Donald Trump stirred the pot on Thursday by advocating for the outright removal of the U.S. debt ceiling, a move that sent shockwaves through the bond market and tempered Wall Street gains.

Trump's remarks came as Congress scrambled to pass a funding bill to avoid a government shutdown just days before the deadline.

In a phone interview with NBC News, Trump didn't mince words, calling the debt ceiling "a meaningless concept" and advocating for its elimination.

"The Democrats have said they want to get rid of it. If they want to get rid of it, I would lead the charge," Trump told NBC News.

According to Trump, the statutory limit on how much the U.S. government can borrow to meet its financial obligations “doesn't mean anything, except psychologically,” and getting rid of it would be the "smartest thing [Congress] could do.”

How Could US Congress Get Rid Of The Debt Ceiling?

To abolish the debt ceiling, Congress would need to pass a new law explicitly repealing or replacing the existing statute that sets borrowing limits. This requires a simple majority vote in both the House of Representatives and the Senate.

In the House, that typically means 218 votes out of 435 members, assuming all members vote. In the Senate, where there are 100 seats, it takes 51 votes to pass a bill—or 50 votes plus the Vice President's tie-breaking vote if the chamber is evenly divided.

Yet, the Senate's infamous filibuster rule complicates things. Without using the budget reconciliation process (a special mechanism reserved for fiscal matters), a bill to eliminate the debt ceiling would need 60 votes in the Senate to overcome a filibuster.

Once the bill passes through Congress, it needs presidential approval to become law.

Should the President veto it – a situation highly unlikely according to what Trump revealed – Congress would face an even steeper challenge: overriding the veto would require a two-thirds majority in both chambers, or 290 votes in the House and 67 votes in the Senate.

Goldman Sachs: Shutdown Unlikely To Drag On

Goldman Sachs economist Alec Philips highlighted that a government shutdown, while disruptive, is unlikely to persist for long.

"We estimate that a shutdown would reduce GDP growth in the quarter by 0.15 percentage points for each week it lasted and would boost GDP growth by the same amount in the quarter following government reopening," Philips said.

Yet, Philips also acknowledged that the disruption wouldn't be without its pain points, particularly for federal employees and government contractors, who might bear the brunt of the fallout in real-time.

According to the economist, two potential paths have emerged.

First, Republicans could tie a debt limit increase to the spending bill set for March 2025, although this would likely require concessions from Democrats, such as a $20 billion annual extension of ACA insurance premium subsidies.

Alternatively, Republicans may pursue a debt limit suspension through an early 2025 budget reconciliation bill focused on immigration enforcement.

However, the success of these strategies is uncertain, as both approaches hinge on complex political negotiations.

Market reactions: Bonds fears spill over to Wall Street

Long-dated Treasuries, the asset class most sensitive to debt ceiling developments, reacted sharply to the news of Trump's call to eliminate the borrowing cap. Bond investors weren't thrilled, and their response was clear: yields on 30-year Treasury bonds surged 7 basis points to 4.75%, reaching their highest levels since May 2024.

The spike in yields hammered the popular iShares 20+ Year Treasury Bond ETF TLT, which tumbled 1.5%, revisiting its April 2024 lows and flirting with its worst levels in over a year. This selloff reflects growing concerns over the possibility of unchecked government spending, which could fuel larger deficits and inflationary pressures.

Equities didn't escape unscathed either. The broader U.S. stock market lost steam as major indices pared their session gains.

The S&P 500—tracked by the SPDR S&P 500 ETF Trust SPY—dropped 0.5%, or 150 points, following the news.

Investors worried that removing the debt ceiling could stoke inflation and force the Federal Reserve into a more hawkish stance, generating further uncertainty in the path of rate cuts ahead.

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