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What happened?
On Thursday, 3 July, House Republicans narrowly approved the Senate’s version of US President Donald Trump’s signature economic policy package, the One Big Beautiful Bill (OBBB), by a 218-214 vote. Every Democrat and two Republicans opposed the measure. The razor-thin margin followed weeks of tense negotiations, with party leaders able to afford only a handful of defections. Despite internal disagreements over the scale of spending cuts and deficit impact, the legislation advanced enough of the party’s core agenda to secure passage, paving the way for a 4 July presidential signing ceremony.

The OBBB ushers in a new era of fiscal policy, combining steep spending reductions with even larger, mostly permanent, cuts to individual and corporate taxes. The bill also introduces temporary tax exemptions for tips, overtime, and seniors; increases funding for border security and defense,; and cuts spending on programs such as Medicaid, nutrition, clean energy, and student loans.

While the legislation lifts the debt ceiling by USD 5 trillion, averting a near-term fiscal showdown, it is projected to add trillions to the US debt load over the next decade.

Financial markets had largely anticipated the move, with equities and US Treasury yields showing relatively limited reaction; the S&P 500 rose 0.8% on Thursday, while the 10-year Treasury yield rose 7 basis points, but these moves were in part in reaction to a stronger-than-expected jobs report.

What do we think?
The OBBB significantly alters the US debt outlook. The passage of the OBBB marks a significant shift in the US fiscal outlook. The Committee for a Responsible Federal Budget estimates that the bill will add USD 4.1 trillion to the deficit over the next decade, or USD 5.5 trillion if all tax cut provisions are made permanent. The legislation not only raises the debt ceiling by USD 5 trillion, but also locks in a higher debt path for years to come. While the immediate risk of a fiscal standoff later this summer has been averted, we see clear long-term implications: The US will face a much larger debt burden, with increased Treasury issuance likely required to fund persistent deficits.

The bill’s fiscal impact is clear in the projected deficit path. The deficit, as a share of GDP, is now projected to remain around 7% through the next ten years—substantially higher than the Congressional Budget Office’s January forecast, which anticipated a decline to 5.2% by 2027. This sustained fiscal gap reflects both the scale of the tax cuts and the challenges of enacting meaningful spending reductions. As a result, we believe the US fiscal position will remain under pressure, with debt sustainability concerns likely to persist.

The OBBB also changes how future fiscal policy may be shaped. A notable feature of the OBBB is the decision by Senate Republicans to use the current policy baseline, rather than current law, for scoring the bill’s impact on the deficit. This approach allowed lawmakers to avoid technical deficit increases from extending existing tax cuts, effectively sidestepping the Byrd Rule’s restrictions on reconciliation. If this method becomes standard practice, it could further erode legislative fiscal restraint, making it easier for future unified governments to enact large tax cuts without fully accounting for their long-term fiscal impact. This move may set a precedent that could shape US fiscal policy for years to come.

How do we invest?
While the final details of the OBBB were only settled this week, markets had already priced in much of the expected fiscal and economic impact. However, the longer-term outlook is clouded by persistent deficits and higher Treasury supply, which could put upward pressure on yields, particularly at the long end of the curve, where debt sustainability concerns are most acute.

Phase into equities: The OBBB’s passage provides a modest fiscal boost for 2026, and the bill’s tax cuts and spending reforms may support earnings growth at the margin. The bill’s passage, alongside progress this week on trade deals, is aligned with our view that the second half of the year will bring improved clarity on US policy, helping lay the groundwork for equity market gains in 2026. Investors who are under-allocated to equities should consider gradually increasing exposure to diversified global stocks or balanced portfolios to position for future gains.

Seek durable income: In fixed income, US Treasury yields have declined over the past month even as the larger-than-expected future Treasury supply became apparent. We expect the deficit to be funded through increased short-end supply, especially Treasury bills. The 30-year yield has declined the least after rising more than other points on the curve, reflecting the sensitivity of long-end yields to debt sustainability concerns. We favor high-quality investment grade bonds in the intermediate area of the yield curve as they offer attractive risk-return profiles and historically attractive yields.

Sell dollar rallies: Sustained deficits near 7% of GDP and a rising debt load are likely to weigh on the US dollar over time. We would reduce excess US dollar cash and diversify into other major currencies such as the euro and Australian dollar. International investors should review their strategic currency allocations and consider hedging US dollar exposure in US assets back into their home currencies, as fiscal concerns may drive further dollar weakness.

Navigate political risks: The OBBB’s potential precedent-setting approach to fiscal scoring and deficit expansion increases the risk of future policy shifts and market volatility. We continue to see gold as a valuable long-term portfolio diversifier, supported by ongoing fiscal and geopolitical risks, central bank demand, and the prospect of declining real interest rates. We maintain our USD 3,500/oz year-end target, versus USD 3,343 at the close of trading on Thursday. We recommend a mid-single-digit allocation to gold, alongside alternatives like hedge funds and capital preservation strategies on equities.