An economy facing possible indigestion from big increases in tariffs now is contending with a second headwind: potential fallout from a rise in government borrowing costs.

European markets followed Asia lower Thursday, burdened by concerns about the rising cost of American debt following a weak U.S. bond auction that sent Treasury yields higher.

The House of Representatives will attempt to pass President Trump’s tax and spending bill Thursday. The plan is expected to add trillions of dollars in debt over the next decade.

Congressional Republicans and the White House have plowed ahead with a package of tax cuts designed to shore up the economy and soothe jitters about the hit from tariffs. But the cost of the tax bill could be adding to investor concerns over perpetually high budget deficits.

Government bonds have sold off in recent days, sending up yields after Moody’s stripped the U.S. of its triple-A credit rating and House Republicans pushed President Trump’s tax bill past a key hurdle. The selloff on Wednesday was particularly pronounced for longer-dated Treasurys. Yields on the 30-year bond reached 5.089%, the highest since October 2023, after a lackluster auction for 20-year securities. Yields on the 10-year Treasury note rose to 4.595%, the highest since February.

• Global Markets Lower on Concerns Surrounding U.S. Debt

Federal spending cuts haven’t dramatically disrupted the labor market so far, but forward-looking data show that effects could be starting to materialize. Indeed job postings data show that cuts in the Department of Government Efficiency, as well as wider policy changes implemented by the Trump administration, are starting to affect the number of openings in research and related fields, as well as the wider offerings in Washington, D.C. This could be the first signals of weaker overall hiring ahead, in large part because government hiring has accounted for a significant portion of the overall net new jobs. (Barron's)

• U.S. Trade Deals With Allies ‘Suboptimal’ Solution to Tariff Drag, EU’s Dombrovskis Says

India's economy seems to be in shape to withstand the headwinds posed by trade policy shifts, the central bank said in a report. "The Indian economy is exhibiting resilience despite the high trade and tariff-related uncertainty," the Reserve Bank of India said in its latest assessment. India, the world's fourth-largest economy, faces tariff risks from the U.S. under sweeping trade policy announced by the Trump administration in April. It is also exposed to separate U.S. tariffs on steel and aluminum. While that could well dent growth this year, analysts say India has an advantage in the sheer size of its domestic economy and see good odds of a trade deal with the U.S. New Delhi and Washington have already agreed on a broad framework for negotiations. (Dow Jones Newswires)

8:30 a.m.: Chicago Fed National Activity Index (CFNAI)
8:30 a.m.: Unemployment Insurance Weekly Claims Report - Initial Claims
9:45 a.m.: U.S. Flash Manufacturing PMI
9:45 a.m.: U.S. Flash Services PMI
10 a.m.: Existing Home Sales
10 a.m.: Advance Quarterly Services
11 a.m.: Federal Reserve Bank of Kansas City Survey of Tenth District Manufacturing
7 p.m.: FRB New York President John Williams speaks at Monetary Policy Implementation Workshop

8:30 a.m.: FRB St. Louis President Alberto Musalem and FRB Kansas City President Jeffrey Schmid speak at Northwest Arkansas Fireside Chat event
10 a.m.: New Residential Sales

The budget plan under consideration in Congress would see the U.S. deficit hit levels that could strain the long-term sustainability of U.S. debt, Matthew Luzzetti of Deutsche Bank's U.S. economics team writes. The math has worsened as recent trade tumult has scared some investors away from the Treasurys market, lifting term premiums. With higher term premiums baked into Treasury yields, Deutsche's math suggests a U.S. budget-deficit-to-GDP ratio anywhere above 1.2% could lead to longer-run instability, giving the government less room to maneuver than when term premiums were lower and when investors were less skeptical of owning Treasury securities. Congress is considering fiscal plans that could keep budget deficits above 6.5% of GDP, Deutsche notes. — Matt Grossman

• Business activity in Europe declined in May even as President Trump rolled back some tariff hikes while leaving a wide range of duties to be determined by negotiation, according to surveys released Thursday.
• The Ifo business-climate index rose for a fifth straight month to 87.5 in May from 86.9 in April, driven by better business expectations for the coming six months. (Dow Jones Newswires)
• Consumer confidence in the U.K. picked up this month as the outlook for trade improved and data showed the economy grew more than expected at the start of the year, according to a monthly survey published Thursday.
• The New Zealand government warned Thursday further near-term budget deterioration with the country’s nascent economic recovery at risk from a slowdown in world growth and the potential for ongoing volatility in financial markets.

WSJ Pro Central Banking brings you central banking news, analysis and insights from WSJ’s global team of reporters and editors. This newsletter was compiled by markets reporter Vicky Ge Huang in New York. Send your tips, suggestions and feedback to vicky.huang@wsj.com.