NEW YORK CITY, New York: With just weeks to spare before a potential government default, U.S. lawmakers passed a sweeping tax and spending bill that buys short-term relief, but at a long-term cost.

President Donald Trump's so-called "One Big Beautiful Bill," approved by the Republican-led House of Representatives on July 3, extends his 2017 tax cuts, ramps up spending on border security and the military, and slashes Medicare and Medicaid, while sharply increasing the nation's debt burden. Trump is expected to sign it into law.

The legislation also raises the U.S. government's US$36.1 trillion borrowing cap by $5 trillion, heading off fears of a debt default this summer. Analysts had projected that the U.S. Treasury could have exhausted its borrowing authority by late August or early September without action.

While the bill calms immediate concerns, its long-term implications are sobering. Nonpartisan estimates say the legislation will add $3.4 trillion to U.S. debt over the next decade. That's on top of growing unease over weak demand for U.S. Treasuries—a trend that has unsettled financial markets in recent months.

"The bill contributes to some of the structural concerns around Treasuries, with respect to No. 1, ongoing fiscal deficit and elevated debt levels, and No. 2, inflation," said Mike Medeiros, macro strategist at Wellington Management.

BlackRock warned that foreign demand for U.S. government debt is weakening. "We've been highlighting the precarious position of the U.S. government's indebtedness for some time now, and, if left unchecked, we view debt as the single greatest risk to the 'special status' of the U.S. in financial markets," its investment managers said in a note.

The Congressional Budget Office estimates the bill will reduce tax revenues by $4.5 trillion, cut spending by $1.2 trillion, and cause 10.9 million people to lose federal health insurance over the next decade.

Though the bill includes provisions to stimulate growth—such as full expensing for business equipment and R&D—some investors remain cautious.

Campe Goodman of Wellington Management said the legislation could boost economic growth by 0.5 percent next year, but warned that markets may be overlooking the risk of rising borrowing costs. "We believe the One Big Beautiful Bill will accelerate corporate earnings growth, which ultimately will drive equity values," said Ellen Hazen, chief market strategist at F.L. Putnam. "But this could lead to higher-for-longer Treasury rates, making many fixed-income investments somewhat less attractive over the longer term."

On July 2, benchmark 10-year Treasury yields rose after several days of decline, partly due to renewed concerns over fiscal sustainability. Yields move inversely to prices.

Andrew Brenner, head of international fixed income at National Alliance Capital Markets, said the reaction was a sign that so-called bond vigilantes—investors who drive up government borrowing costs in response to poor fiscal policy—were active. "The Vigilantes want to see more deficit cutting... Their view is that Trump and Congress have not done enough," he wrote.

The bill's passage eliminates the risk of near-term debt ceiling disruption. In recent weeks, yields on Treasury bills maturing in August had risen above nearby maturities, a sign of growing default concerns.

"I think (the passage of the bill) takes some of the debt ceiling risks away, so yields on bills maturing in August might come down a little bit," said Vinny Bleau of Raymond James.

Market reaction has been measured. Many investors had already priced in fiscal expansion following Trump's return to the White House in January. The S&P 500 hit a record high on Wednesday, helped by tech stock gains and optimism over U.S. trade deals.

For now, investors appear more focused on the Federal Reserve's rate path and corporate earnings, said Robert Pavlik of Dakota Wealth. "It's not going to be the overall driving factor (for the market)," he said. "It's earnings first and then the Federal Reserve."