*

Longer-dated U.S. Treasury yields hit a more than one-year

high

this week

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Markets concerned over $4 trillion cost of extending tax

cuts

and $36 trillion US government debt

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Democrats argue tax cuts benefit wealthy, harm fiscal

position

By David Morgan

WASHINGTON, Jan 16 (Reuters) - Just days before Donald

Trump returns to power, some of his Republican allies in the

U.S. Congress are warning that the president-elect's aggressive

tax-cut agenda could fall victim to signs of worry in the bond

market.

At a closed-door meeting on Capitol Hill, Republicans in the

House of Representatives aired concerns that the estimated $4

trillion cost over the next 10 years of extending the 2017 Trump

tax cuts could undermine the U.S. government's ability to

service its $36 trillion in debt, which is growing at a pace of

$2 trillion a year.

"The buyers of our bonds are getting nervous that we're at

the point that we cannot pay it back. That affects every one of

us," Republican Representative Ralph Norman told reporters. "If

we can't sell bonds, guess what? We're in a ditch."

The U.S. bond market has become ultra-focused on what the

incoming Trump administration and its allies in Congress may

deliver as they strive to enact a wide-ranging Trump agenda that

also includes the deportation of immigrants living in the

country illegally and new tariffs on imports.

Congress also faces a mid-year deadline to address the

nation's

debt ceiling

or risk a default, after rejecting a Trump attempt last

month to get lawmakers to do so before he takes office on

Monday.

Longer-dated U.S. Treasury yields jumped to their highest

levels since November 2023 this week, with the 10-year bond

hitting a high of 4.79%. It traded lower to 4.66% on Wednesday

afternoon.

"Congress has to reduce the deficit," Republican

Representative Andy Barr said. "The bond market is telling

Congress that if we don't get our fiscal house in order,

everybody's mortgage rates, everybody's credit card rates,

everybody's auto loan rates, are going to continue to go up."

Democrats warn that extending the Trump tax cuts will mainly

benefit corporations and the wealthy, while further undermining

the nation's fiscal position.

Democratic Senator Chris Murphy described Trump's repeated

comments about his desire to take over Greenland, Canada and the

Panama Canal as a distraction from the implications of the tax

cuts.

"They're going to try to distract the press and the public

and the information ecosystem away from the thievery that is

going to happen with this massive tax cut," Murphy said.

Trump has tapped Tesla Chief Executive Elon Musk, the

world's richest person, to find ways to sharply cut federal

spending. Musk set an initial goal of $2 trillion per year that

he this month called a "long shot," saying that $1 trillion may

be more achievable.

Even that lower figure represents almost one-sixth of

all federal spending, a goal

that will be very difficult to meet

given that Trump has ruled out cutting the popular Social

Security and Medicare retirement programs, that Republicans

typically resist cuts to defense spending, and that interest

payments alone cost the nation $1 trillion per year.

In recent days, House Republicans have begun circulating a

list of potential spending cuts totaling as much as $5.7

trillion over a decade - nearly 10% of current spending levels -

that includes spending on Medicaid and the Affordable Care Act.

Republicans in the House and Senate expect to use a

parliamentary tool known as reconciliation to move legislation

containing the Trump agenda through Congress while circumventing

Democratic opposition and the Senate's 60-vote filibuster for

most bills.

Barr said such a reconciliation package would need to

contain a combination of economic stimulus and spending cuts

credible enough to persuade investors that Congress is

addressing the U.S. fiscal woes.

"Will this reconciliation bill actually reduce the deficit?

If they think that it will, that has the very real potential of

lowering Treasury yields," Barr said.

"What we need to say to the American people is, look, this

is not austerity. This is not painful cuts. This is about

lowering your mortgage payment."

(Reporting by David Morgan; Editing by Scott Malone and Lincoln

Feast.)