Welcome to Thoughts on the Market.

I'm Michael Zezis, Head of Public Policy Research and Municipal Strategy for Morgan Stanley.

Along with my colleagues bringing you a variety of perspectives, I'll be talking about the

intersection between U.S. public policy and financial markets.

It's Wednesday, July 14, at 10.30 a.m. in New York.

This week, talks continue in DC on infrastructure and broader fiscal policy, and bond investors

should be paying close attention.

Under a substantial recent decline in Treasury yields, a rate strategy team thinks a major

fiscal package isn't in the price, and that progress towards a substantial pickup

in approved government spending could push yields higher.

In particular, bond investors should be attuned to the Democrats' deliberations on

budget reconciliation.

Remember, Democratic leadership in Congress is committed to not moving the smaller $600

billion bipartisan infrastructure bill without the larger reconciliation-driven infrastructure

package.

Last night, the Democrats announced the size of the reconciliation bill, $3.5 trillion.

That means the U.S. is gearing up to approve $4 trillion in new spending over the next ten

years, matching our base case.

In our view, this would translate to about $250 to $500 billion in federal budget deficit

expansion next year.

Our estimates based on the assumption that Congress may only be able to agree to about

$2 trillion in new revenues to offset the planned spending.

...