Republican lawmakers have spent the past eight years bashing President Barack Obama as fiscally irresponsible, but investors are now betting that Donald Trump could run much bigger budget deficits than Democratic rival Hillary Clinton had planned.

Those bets might underestimate potential political pitfalls, but expectations expansionary fiscal policy will boost economic growth and boost inflation are part of the reason stocks quickly recovered from the swoon that sent futures sharply lower as a surprise Trump victory in the presidential election became apparent late Tuesday night. And it is also part of the reason why Treasury bonds sold off sharply, sending yields soaring.

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“What traders saw was a far more expansive fiscal policy than what they had imagined under Hillary Clinton,” wrote Thierry Albert Wizman, global interest-rates and currencies strategist at Macquarie. ”Moreover, with the Republican sweep of the House and Senate, the prospect that President Trump will actually enact low tax/high-spending policies (a fiscal expansion) was seen to have gotten credible and valid.”

Many Republican lawmakers, including House Speaker Paul Ryan, would likely be reluctant to significantly expand the deficit, however, which could ultimately limit the scope of fiscal measures, analysts said.

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Stocks charged higher on Wednesday and followed through to the upside on Thursday, with the Dow Jones Industrial Average DJIA, -1.74% notching a record high and the S&P 500 SPX, -2.04% gaining ground while the Nasdaq Composite COMP, -2.71% slumped.

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Spending

While details remain scarce, investors are looking for Trump to follow through on spending pledges when it comes to upgrading the nation’s infrastructure.

“We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it,” Trump said early Wednesday.

Infrastructure stocks have performed well this year as both Clinton and Trump pledged to boost spending on dilapidated roads, bridges and other items, but appeared to top in the summer.

The victory by Trump, whose plans, while more vague, were larger, should be a “strong rebound candidate” in the next few months, wrote analysts at Pavilion in Montreal. The largest infrastructure exchange-traded fund, the iShares Global Infrastructure ETF IGF, -1.42% , remains up 6.4% year to date, but shed 3.2% on Wednesday.

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With Republican lawmakers likely to want to rein in public debt, the Trump administration is expected to work with the states to use public-private partnerships to fund much of the infrastructure spending, which would likely help support large construction groups and real-estate investment trusts that are already active in the sector, the Pavilion analysts said.

Trump also has criticized the automatic military-spending cuts that were enacted under budget sequestration in 2011. Presumably, Trump will move to reverse the trend given his support for expanding military capabilities across the board, the Pavilion analysts said, which means most domestic-focused names in aerospace and defense should benefit. The SPDR S&P Aerospace and Defense ETF XAR, -2.86% is up 8.6% this week and 17.4% year to date.

Tax cuts

Tax cuts are high on Trump’s agenda, including calls for sweeping reductions in personal income-tax rates and slashing the corporate income-tax rate to 15% from 25%. Reduced revenues could be partly offset by a cap on itemized deductions and other measures.

The tax measures will have the biggest impact on the deficit and debt levels under the Trump plan. The Committee for a Responsible Federal Budget estimates the Trump proposals would reduce revenues by $5.8 trillion over a decade. Overall, Trump’s measures are forecast by the group to add $5.3 trillion to the deficit over 10 years, versus the $200 billion rise that was expected over the same period under the Clinton plan.

With the deficit implications, it’s “no wonder that the bond market rioted” on Wednesday, wrote Wizman.

The yield on the 10-year Treasury note TMUBMUSD10Y, 0.676% saw its biggest surge in three years Wednesday to trade above 2% for the first time since January. Yields rise as bond prices fall.

While still very low by historical standards, the yield continued to rise Thursday, “driven by the prospect that expansive fiscal policy — in the face of near full-employment — will only drive inflation higher, and prompt a Fed response eventually,” Wizman said.

A “more sanguine” interpretation of the yield move is that stronger economic growth would warrant a higher level of interest rates, said Albert Brenner, director of asset allocation at People’s United Wealth Management, in an interview.

Brenner and others also pointed to the possibility that Congress would seek to at least partly reduce the revenue hit from tax measures by instituting a tax holiday on repatriation of profits held overseas by U.S.-based corporations.

The holiday would see corporations encouraged, or perhaps even required, to bring back profits, which would be taxed at a lower rate, providing a near-term revenue windfall.

Meet the deficit hawks

That’s unlikely to be enough, however, to prevent wider deficits and a bigger debt pile. The deficit shrunk from $1.4 trillion in 2009 to $588 billion in fiscal 2016, while public debt has topped $19 trillion. It will be interesting to see how Republican lawmakers, including tea party conservatives, react.

In October 2014, every Republican senator voted against suspending the debt ceiling. At the time, Republicans were in the minority in the upper chamber. Republicans are now in the majority.

Trump’s proposals would require either a huge increase in the debt ceiling, a repeal of the law or its continued suspension, noted Ian Shepherdson, chief economist at Pantheon Economics, in a Thursday note.

“We just don’t know at this point how the competing interests within the Republican Party will be reconciled,” he said, “though we’re guessing that the prospect of enormous tax cuts will persuade many previously resistant lawmakers to revise their principles.”

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