Influential Republican Paul Ryan, who heads the House Budget Committee, is making some tough demands in exchange for raising the debt ceiling.

He said “the size of the spending cuts should exceed the size of the President’s debt limit increase.” 

Previously, some Republicans only demanded that the spending cuts and debt ceiling match dollar-for-dollar.

Ryan made the comments in a speech Monday morning at the Chicago Economic Club. 

The 10-year Treasury rallied after his speech and continued to climb on Tuesday.

Ryan said the key to reining in the budget deficit is controlling the surging cost of health care. For him, not only are changes to Medicare on the table, they're an indispensible part of his solution. He proposes to change Medicare from a blanket government guarantee to a premium subsidy from the government.

“Our plan is to give seniors the power to deny business to inefficient providers,” said Ryan.

What does Ryan’s speech mean for the bond market?

Come August 2 (the deadline by which the U.S. Treasury expects to have exhausted all borrowing authority allowed by Congress), it could be a negative factor because his tough stance may result in the failure to reach a compromise to raise the debt ceiling. In a worst-case scenario, debt payments may even be suspended for a short time.

In the long-term, his intentions are clearly positive for the bond market because reduced government spending on entitlement programs will increase the government’s ability to repay debt.

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