Donald Trump is returning to the White House, and the stock market is loving it.

Investors, relieved to have a clear-cut election winner and fired up about the prospect of tax cuts and deregulation, have sent US stocks zooming higher.

The Dow Jones Industrial Average closed above 44,000 on Monday for the first time ever. The S&P 500 last week notched its best week of the year and third-best presidential election week since 1928.

Big bank stocks have spiked on hopes of a lighter regulatory touch. Private prison companies are going to the moon as investors bet that mass deportations will boost demand for their services. And the crypto space is on fire as Trump has gone from a bitcoin skeptic to a believer.

And yet the bond market has some concerns that Trump’s tax cuts could add trillions to the national debt and his massive tariffs and other policies could stoke inflation.

US Treasuries, sniffing out a potential Trump win, sold off in the weeks before Election Day. And bonds kept selling last week as the full scale of Trump’s victory sent shockwaves around the world.

Treasury rates, which move opposite prices, have spiked, causing mortgages and other debt to get even more expensive.

“The stock market loved the election outcome. But there is nervousness in the bond market. It’s more worried about the size of deficits and the possibility of inflationary tariffs,” said David Kotok, co-founder and chief investment officer at investment management firm Cumberland Advisors.

There are multiple reasons why Treasury rates have spiked.

Stephanie Roth, chief economist at Wolfe Research, ran an analysis that found two central forces at play: optimism about the economy and the outcome of the election.

The 10-year Treasury yield has surged by 0.4 percentage points this year, and three-quarters of that has been driven by the election, according to Roth. (The Federal Reserve’s interest rate cuts have prevented rates from going even higher).

Another $8 trillion in debt?

“Everything about Trump is consistent with a higher rate environment,” Roth said.

Why?

First, investors are betting the economy grows even faster under Trump.

Secondly, the market is pricing in fatter government deficits under Trump.

Although the national debt was expected to increase significantly no matter who won the White House, the impact is viewed as potentially much larger under Trump. The president-elect has proposed fully extending the 2017 tax cuts and has floated cutting the corporate tax rate to 15% as well as a laundry list of other tax breaks.

Trump’s plans would add $7.75 trillion to the national debt over a decade, compared with $3.95 trillion under his opponent Vice President Kamala Harris, according to estimates from the Committee for a Responsible Federal Budget.

Nearly two-thirds (65%) of economists surveyed by The Wall Street Journal recently said deficits would be higher under Trump than Harris.

“The lack of fiscal discipline is a concern,” Jeff Buchbinder, chief equity strategist at LPL Financial, wrote in a report Monday, adding that LPL doesn’t think rates will go much higher.

Inflation concerns

Many economists and investors worry that Trump’s economic agenda will be inflationary. In addition to tax cuts, Trump has called for across-the-board tariffs on all $3 trillion of US imports. And his proposals for mass deportation could raise prices, especially in sectors that rely on undocumented workers like housing and agriculture.

That’s why 68% of the economists surveyed by the Journal said prices would rise faster under Trump than Harris.

“The bond market isn’t fully convinced the inflation genie is back in the bottle,” said Buchbinder.

Kotok noted that although Trump has argued foreigners will pay the cost of tariffs, it’s really Americans that will pay. And he pointed out that presidents have vast powers to impose tariffs.

“The tariff issue is a concern because it’s a sales tax,” Kotok said. “Tariffs are done by executive order. Congress gave the authority to the president long ago. They’re not going to take it back and no president would give it up without a fight.”

Wall Street is betting that the combination of higher inflation and faster growth under Trump will force the Fed to scale back its plans for interest rate cuts.

No matter the reason, Americans are already feeling higher borrowing costs as a result of the bond market selloff.

Even as the Fed cuts rates, mortgage rates are surging again. A 30-year fixed-rate mortgage averaged 6.79% as of November 7, up from 6.08% right after the Fed delivered a jumbo-sized rate cut in September, according to Freddie Mac.

‘The regime change’

For now, stock market investors don’t seem bothered by the jump in bond yields or these inflationary or debt concerns.

“Animal spirts are back,” Ed Yardeni, president of investment advisory Yardeni Research, wrote in a note to clients Monday.

“The stock market jumped for joy that the election results were definitive, thus averting a contested election. Stock investors are also thrilled by the regime change to a more pro-business administration promoting tax cuts and deregulation.”

Yardeni expects that faster economic growth will increase the amount of revenue the federal government rakes in, giving Washington more firepower to pay US debt.

Of course, market veterans say they wouldn’t be surprised to see the stock market eventually display concern about tariffs and inflation under Trump. It’s just not the focus now.

“The market isn’t focused yet on tariffs, which are quite negative. The market is pricing all the positives, perhaps too much so,” said Roth. “But I wouldn’t lean against it yet. Maybe next year.”

A further rate spike could cause trouble

There is also a risk that bond yields continue to rise, making it more expensive for companies and individuals to borrow money. That could pose a number of problems for the economy and the stock market.

If rates spike much higher, bonds’ returns could prove tempting enough to draw investors’ cash away from the stock market – especially given how expensive US stocks have gotten.

Moreover, higher rates would act like a brake on the real economy by boosting the cost of credit for small businesses and consumers alike.

Not only that, but the higher Treasury rates go, the more expensive it is for the federal government to finance its mountain of debt – a mountain that could get much, much larger under Trump.

As it is, the national debt is surging by $1 trillion roughly every 100 days, according to BTIG’s Isaac Boltansky.

“Higher rates would become problematic at some point. I don’t think we’re there yet,” said Roth.