This will be yet another drain on dwindling liquidity as bank deposits are raided to pay for it — and Wall Street is warning that markets aren’t ready.
The negative impact could easily dwarf the after-effects of previous standoffs over the debt limit. The Federal Reserve’s program of quantitative tightening has already eroded bank reserves, while money managers have been hoarding cash in anticipation of a recession.
JPMorgan Chase & Co. strategist Nikolaos Panigirtzoglou estimates a flood of Treasuries will compound the effect of QT on stocks and bonds, knocking almost 5% off their combined performance this year.
Citigroup Inc. macro strategists offer a similar calculus, showing a median drop of 5.4% in the S&P 500 over two months could follow a liquidity drawdown of such magnitude, and a 37 basis-point jolt for high-yield credit spreads.
The sales, set to begin Monday, will rumble through every asset class as they claim an already shrinking supply of money: JPMorgan estimates a broad measure of liquidity will fall $1.1 trillion from about $25 trillion at the start of 2023.
“This is a very big liquidity drain,” says Panigirtzoglou. “We have rarely seen something like that. It’s only in severe crashes like the Lehman crisis where you see something like that contraction.”
It’s a trend that, together with Fed tightening, will push the measure of liquidity down at an annual rate of 6%, in contrast to annualized growth for most of the last decade, JPMorgan estimates.
The US has been relying on extraordinary measures to help fund itself in recent months as leaders bickered in Washington. The measure brokered between Biden and House Speaker Kevin McCarthy limits federal spending for two years and suspends the debt ceiling through the 2024 election.
With default narrowly averted, the Treasury will kick off a borrowing spree that by some Wall Street estimates could top $1 trillion by the end of the third quarter, starting with several Treasury-bill auctions on Monday that total over $170 billion.
What happens as the billions wind their way through the financial system isn’t easy to predict. There are various buyers for short-term Treasury bills: banks, money-market funds and a wide swathe of buyers loosely classified as “non-banks.” These include households, pension funds and corporate treasuries.
Banks have limited appetite for Treasury bills right now; that’s because the yields on offer are unlikely to be able to compete with what they can get on their own reserves.
But even if banks sit out the Treasury auctions, a shift out of deposits and into Treasuries by their clients could wreak havoc. Citigroup modeled historical episodes where bank reserves fell by $500 billion in the span of 12 weeks to approximate what will happen over the following months.
“Any decline in bank reserves is typically a headwind,” says Dirk Willer, Citigroup Global Markets Inc.’s head of global macro strategy.
The most benign scenario is that supply is swept up by money-market mutual funds. It’s assumed their purchases, from their own cash pots, would leave bank reserves intact.
Historically the most prominent buyers of Treasuries, they’ve lately stepped back in favor of better yields on offer from the Fed’s reverse repurchase agreement facility.
That leaves everyone else: the non-banks. They’ll turn up at the weekly Treasury auctions, but not without a knock-on cost to banks.
These buyers are expected to free up cash for their purchases by liquidating bank deposits, exacerbating a capital flight that’s led to a cull of regional lenders and destabilized the financial system this year.
The government’s growing reliance on so-called indirect bidders has been evident for some time, according to Althea Spinozzi, a fixed-income strategist at Saxo Bank A/S.
“In the past few weeks we have seen a record level of indirect bidders during US Treasury auctions,” she says. “It’s likely that they’ll absorb a big part of the upcoming issuances as well.”
For now, relief about the US avoiding default has deflected attention away from any looming liquidity aftershock. At the same time, investor excitement about the prospects for artificial intelligence has put the S&P 500 on the cusp of a bull market after three weeks of gains. Meanwhile, liquidity for individual stocks has been improving, bucking the broader trend.
But that hasn’t quelled fears about what usually happens when there’s a marked downturn in bank reserves: Stocks fall and credit spreads widen, with riskier assets carrying the brunt of losses.
“It’s not a good time to hold the S&P 500,” says Citigroup’s Willer.
Despite the AI-driven rally, positioning in equities is broadly neutral with mutual funds and retail investors staying put, according to Barclays Plc.
“We think there will be a grinding lower in stocks,” and no volatility explosion “because of the liquidity drain,” says Ulrich Urbahn, Berenberg’s head of multi-asset strategy. “We have bad market internals, negative leading indicators and a drop in liquidity, which is all not supportive for stock markets.”
Biden Debt-Bill Signing Set To Unleash Tsunami Of US Debt Sales
* Treasury Expected To Sell $1 Trillion Or More Of New Debt
* Department Ran Down Cash To Keep Making Federal Payments
President Joe Biden’s signature of legislation suspending the federal debt ceiling has given the Treasury Department the green light to resume net new debt issuance after months of disruption.
Ever since mid-January, when it hit the $31.4 trillion debt ceiling, the Treasury has been using special accounting measures to maintain payments on all federal obligations. There were just $33 billion of those left available as of May 31.
It’s also been running down its cash balance, which dropped below $23 billion on June 1 — a level seen by experts as dangerously low given the volatility in day-to-day federal revenues and payments.
The bill Biden signed Saturday suspended the debt limit until Jan. 1, 2025, allowing the Treasury to rebuild its cash to more normal levels. Early last month, the department had penciled in a $550 billion cash-balance level for the end of June. A widening fiscal deficit also puts pressure on the Treasury to step up borrowing.
Debt auctions are now set to swell. The replenishing process — which could involve an amount well in excess of $1 trillion in new securities — could have unwanted consequences, by draining liquidity from the banking sector, raising short-term funding rates and tightening the screws on an economy that many economists see headed for a recession.
Bank of America Corp. has estimated the issuance wave could have the same economic impact as a quarter-point interest-rate hike by the Federal Reserve.
Auction announcements will offer investors guidance on how quickly the Treasury will go about stepping up issuance.
On Thursday, the department said it planned to bolster the size of upcoming three-month and six-month bill offerings by $2 billion apiece in the coming week. It has also already been ramping up its issuance of four-month debt, its newest bill benchmark.
Four- and eight-week auctions, meanwhile, have room to grow after being reduced to $35 billion each for each weekly issuance cycle.
Treasuries started the week on the back foot with benchmark 10-year yields climbing four basis points to 3.73% in Asia trading.
Meantime, the removal of the debt ceiling will prompt officials to undo the emergency accounting maneuvers they used to make extra funding available after the Treasury had hit the limit.
The unwinding maneuvers will have no impact on borrowing from the public, however, since the process involves issuing nonmarketable securities to certain internal funds, like the Thrift Savings Plan Government Securities Investment Fund for federal employees.
For the past several months, the Treasury had halted the issuance of those securities while continuing to collect the cash coming in to such funds.
US Racks Up $652 Billion In Debt Costs As Rates Hit 11-Year High
* Higher Interest Rates Mean Bigger Debt Servicing Costs
* US Budget Gap Widens 170% In First Nine Months Of Year
The cost of servicing US government debt jumped by 25% in the first nine months of the fiscal year, reaching $652 billion and contributing to a major widening in the budget deficit.
For the nine months through June, the federal deficit hit $1.39 trillion, up some 170% from the same period the year before, according to Treasury Department data released on Thursday.
The widening shortfall may play into Republican lawmakers’ pressure to curtail federal spending. While the GOP, which controls the House, did a deal with the Biden administration to suspend the debt limit earlier this summer, a fresh fight looms over appropriations for the 2024 fiscal year, which starts Oct. 1.
Higher interest rates have been a key driver of the deficit, with the Federal Reserve boosting its benchmark rate by 5 percentage points since it began hiking in March last year. Five-year Treasury yields are now about 3.96%, versus 1.35% at the start of last year. As lower-yielding securities mature, the Treasury faces steady increases in the rates it pays on outstanding debt.
The weighted average interest for total outstanding debt by the end of June was 2.76%, the highest level since February 2012, according to the Treasury. That’s up from 1.80% a year before, the department’s data show.
Still, Treasury Secretary Janet Yellen has played down concerns about higher rates. She has instead flagged that the ratio of interest payments to GDP, after adjustment for inflation, remains historically low.
Another key reason for the widening deficit this year has been a weakening in Treasury revenues, thanks especially to a reduced capital gains tax take. Last year’s slumps in stocks, bonds and other assets meant lower receipts for the government.
Inflation has also boosted a number of government spending items.
Traders Brace For $102 Billion Wave Of Treasury Bond Sales
* Treasury’s Quarterly Refunding Plan Is Due On Wednesday
* Dealers See Series Of Boosts To Debt Sales In Coming Quarters
The US Treasury is set this week to begin a ramp-up in issuance of longer-dated securities that’s likely to stretch into next year, forced by a rapidly deteriorating budget deficit and soaring interest rates.
For the first time since early 2021, the Treasury will boost its so-called quarterly refunding of longer-term Treasuries, to $102 billion from $96 billion, the consensus among dealers suggests.
While down from the record levels hit during the Covid-19 crisis, that’s well above pre-pandemic levels.
Wednesday’s announcement will likely also see debt managers hoist regular auction sizes for securities across the yield curve — with potential exceptions or smaller bumps for notes less in demand. Dealers will be on watch separately for an update on a coming program to buy back older Treasuries.
Public borrowing needs are on the rise thanks in part to Federal Reserve rate hikes that have taken its policy benchmark to a 22-year high — in turn driving up yields on government debt, making it more costly.
The Fed is also shrinking its holdings of Treasuries, obligating bigger government sales of them to other buyers. It all raises the risk of bigger volatility swings when the government auctions its securities.
“There’s just a lot of supply coming,” said Mark Cabana, head of US interest-rate strategy at Bank of America Corp. “We’ve been surprised by the deficit numbers, which are sobering.”
Larger amounts of debt issuance haven’t translated directly into lower prices and higher yields, as the swelling in US debt alongside historically low yields attests over the past two decades.
But bigger auction sizes contribute to the potential for short-term volatility, at a time when banks have diminished appetites for market making. That was on display in a seven-year auction on Thursday that saw buyers demand a bigger discount to absorb the securities.
What has sent yields higher is Fed rate hikes and inflation, a key dynamic widening the budget deficit. The cost of servicing US government debt jumped by 25% in the first nine months of the fiscal year, reaching $652 billion — part of a global phenomenon propelling public borrowing.
Cabana and his team forecast the Treasury will bump up sales of coupon-bearing debt — as notes that pay interest are known — not only this month, but again in the November and February debt-management policy announcements.
The Consensus Of Dealers’ Projections Shows The Following For The Upcoming Refunding Auctions:
* $42 Billion Of 3-Year Notes On Aug. 8 * $37 Billion Of 10-Year Notes On Aug. 9 * $23 Billion Of 30-Year Bonds On Aug. 10
Beyond those sales, most dealers see a lift in issuance across most maturities at a clip of $2 billion each, with many seeing smaller increases for 7- and 20-year Treasuries, which have seen bouts of poor demand.
Some dealers predict the 20-year bond will be singled out for no change in size. That security has been plagued by weak pricing and liquidity since the Treasury relaunched it in 2020.
“There should be well-distributed auction increases across the curve,” besides slightly smaller ones for the 7- and 20-year debt, said Subadra Rajappa, head of US interest rates strategy at Societe Generale SA. “It’s a one-way trajectory now for the deficit over the next 10 years, with them getting larger. Treasury wants to makes sure they are well funded for the next several years.”
The federal deficit hit $1.39 trillion for the first nine months of the current fiscal year, up some 170% from the same period the year before, showcasing the Treasury’s burgeoning funding needs. On Monday, the department boosted its forecast for borrowing in the July-to-September quarter to $1 trillion, from the $733 billion it penciled in in early May.
What Bloomberg Intelligence Says…
“Coupon Treasury issuance may be slowly increased over the next six months.
“Coupon auctions could climb by $1 billion across the curve in August, with monthly auctions rising an additional $1 billion each month through January.”
— Ira F. Jersey And Will Hoffman, BI Strategists
Meantime, the Fed is shrinking its holdings of Treasuries by up to $60 billion a month, by letting securities mature without replacing them.
Fed Chair Jerome Powell last week also signaled that the portfolio runoff could continue at some pace even after policymakers had begun cutting interest rates, suggesting a longer period than many had thought for the so-called quantitative tightening program.
Another dynamic for Treasury’s managers to consider is the share of bills, which mature in short-term spans of up to a year, in overall debt outstanding.
The Treasury Borrowing Advisory Committee, a panel of market participants including buyers and dealers, has long advised a 15% to 20% range for that ratio.
The Treasury lately has been selling a barrage of bills as it sought to rebuild its cash balance in the wake of running it down to dangerously low levels during the partisan battle over the debt limit earlier this year.
Citigroup Inc.’s team said the targeted T-bill share of debt will be among the things they’re looking for this week.
“Treasury needs to materially increase auction sizes at the November and February refunding,” Citigroup’s Jabaz Mathai, head of Group of 10 rates strategy also said in a note to clients. The later-quarter increases are set to be at “a quicker pace than the post-Covid issuance cycle,” he added.
Another item to watch will be any update to the Treasury’s plans for buybacks, which they first unveiled in May after months of consideration.
One of the aims of buying back older securities and issuing more of the current benchmarks is to help bolster patchy liquidity in the Treasuries market. Another is to smooth out volatility in its issuance of T-bills.
The program is set to start next year, but dealers see the Treasury as still working out the details. The department queried them about again in their pre-refunding survey questions.
US Treasury Boosts Quarterly Borrowing Estimate To $1 Trillion
* Department Had Previously Estimated $733 Billion For Quarter
* Treasury Still Restocking Cash Balance After Debt-Limit Fight
The US Treasury boosted its estimate for federal borrowing for the current quarter as it addresses a deteriorating fiscal deficit and keeps replenishing its cash buffer.
The Treasury Department increased its net borrowing estimate for the July through September quarter to $1 trillion, well up from the $733 billion amount it had predicted in early May.
The new amount, published on Monday, is a record for the September quarter and in excess of what some close watchers of the figure had expected. JPMorgan Chase & Co. had penciled in $796 billion. Lou Crandall at Wrightson ICAP LLC predicted $885 billion.
Part of the higher borrowing estimate is due to a bigger cash balance planned for the end of September. The Treasury bumped that number up to $650 billion, from the $600 billion it had anticipated three months ago. The cash stockpile — known as the Treasury General Account, or TGA — is currently about $552 billion.
Since Congress and the White House agreed to suspend the debt limit in early June, the Treasury has been ramping up its cash balance — which debt managers had run down toward zero as they made good on federal obligations without being able to increase borrowing.
Bond dealers have foreseen US funding needs rising over the next several quarters thanks to a deteriorating budget deficit and to the Federal Reserve’s shrinking of its holdings of Treasuries — a process that effectively forces the government to sell more to the public.
Jay Barry, head of US government-bond strategy JPMorgan, was among those expecting the Treasury to boost its quarterly financing estimate, based on “the fiscal trajectory, the outlook for the Fed’s balance sheet” and “expectations for Treasury’s cash.”
The Treasury said Monday that $83 billion of the increase in the borrowing estimate for the current quarter was due to projections for weaker revenues and higher spending.
“Extrapolating the current trend, based on historical deficit seasonal trends, would leave the deficit tracking $1.8 trillion,” JPMorgan’s Barry wrote in a recent note. The gap was $1.39 trillion for the first nine months of the current fiscal year.
Meantime, for the October through December quarter, the Treasury said it expects to borrow $852 billion, with a cash balance of $750 billion for the end of the year.
The all-time high for quarterly borrowing of almost $3 trillion was hit in April-to-June 2020, thanks to the pandemic crisis.
The Treasury on Wednesday will announce plans for its so-called refunding of longer-term securities. Dealers expect US debt managers to lift coupon-bearing debt sales across the yield curve — with potential exceptions or smaller bumps for notes less in demand.
US 30-Year Treasury Auction Signals Weak Demand To Wrap Up Week Of Big Sales
* Week Of Big Sales Indicates Market Struggling To Absorb Deals
* US 30-Year Yield Jumps Higher As Auction Trumps Inflation Data
US Treasuries came under renewed pressure, pushing yields higher, as the market struggled to absorb this week’s final leg of new debt sales.
The moves extended a volatile session Thursday, when soft inflation data for July initially pushed yields lower and fueled speculation that the market would easily accommodate the $23 billion auction of 30-year bonds at 1 pm New York time.
But even with the bonds sold for a yield of 4.189%, the highest since 2011, the amount allotted to primary dealers was the largest since February, a sign of weak demand. Afterward, 30-year yields jumped as high as 4.26% late in New York.
The sale was the biggest test of this week’s auctions, when the Treasury sold a combined $103 billion of new 3-, 10- and 30-year debt, because the long maturity securities usually appeal to select investors such as pension funds and insurers.
The size of the 30-year bond sale was $2 billion larger than last new-issue offering in May, and the market expects further increases given the expected deficits the US government is facing.
“It’s a case of refunding digestion,” and with shorter-dated Treasury yields higher, “you are getting paid to keep duration short,” said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities. He said the sale also reflects weak summer liquidity.
Treasury yields dropped early in the trading day after the consumer price index’s advance was in line with expectations, supporting anticipation that the Federal Reserve is likely done raising interest rates.
Ten-year Treasury yields dropped as much as 6 basis points to 3.94% before reversing course and jumping back to as much as 4.11% in the late afternoon.
“The selloff feels likes a reaction to the weak auction,” said Subadra Rajappa, head of U.S. rates strategy for Societe Generale. “It caught me by surprise. Dealers had to take down a big chunk of the paper. It feels like there’s not enough of real money participation.”
But, she added, “it’s hard to draw a conclusion for an auction in August” when investors leave for vacations.
The post-auction weakness extended across the market, with yields between the five- and 10-year benchmarks higher by 9-10 basis points and at fresh session peaks at late trading in New York. Traders said the mid-section of the Treasury curve was in focus, with trades favoring under-performance in 5-year bonds.
While the bond market initially warmed to the latest CPI report, traders are still pricing in some risk of another quarter-point Fed hike later this year, with swaps for the November meeting showing a 5.42% policy rate. It’s at 5.33% now.
“The market sees the economy is now in a more disinflationary trend, but the labor market is still strong and that will keep the Fed on its toes,” said Michael Pond, head of global inflation-linked research at Barclays.
Treasury Auctions End On A Downbeat Note This Week After Soft 30-Year Sale
‘If we put all these factors into a blender, for the first time in 10 to 15 years they’re all pointing in the same way and that’s pressure on yields regardless of the inflows that come and go,’ said Gregory Faranello of AmeriVet Securities.
The Treasury market ended the week on a somewhat downbeat note after struggling to absorb Thursday’s $23 billion auction of 30-year bonds despite a record pace of investor inflows.
Demand for the auction was described by strategists and traders as “so-so,” “soft” and “weaker-than-expected.” Thursday’s disappointing sale overshadowed July’s consumer-price report and was the main reason that investors and traders sold off long-dated Treasurys that same afternoon.
The selloff in long-dated U.S. government debt extended into Friday — pushing the 10-year yield and 30-year rate to one-week highs of 4.166% and 4.271%, respectively — and comes at a time when Treasurys are on track for what BofA Securities strategists see as a record $206 billion of inflows this year. Greater inflows should be pushing yields lower, not higher, but that’s not happening. Instead, yields are rising anyway.
Demand/supply dynamics in the Treasury market have recently changed and “the balance of power seems to be shifting in favor of higher yields” at a time of “runaway” government deficits and increases in Treasury’s debt issuances, said Marios Hadjikyriacos, a senior investment analyst at Cyprus-based multiasset brokerage XM.
In a note on Friday, the analyst said that the soft 30-year Treasury auction “certainly reinforced this notion yesterday, helping to propel yields higher,” alongside commentary from San Francisco Fed President Mary Daly, who said the central bank has more work to do to get inflation down.
This week’s government auctions were seen as a key test as to whether investors could keep up their demand for U.S. government debt amid a deluge of issuance and worries about the fiscal outlook.
However, liquidity during August tends to be low so Thursday’s poorly received 30-year sale is not necessarily indicative of further trouble ahead, considering Wednesday’s $38 billion auction of 10-year notes and Tuesday’s sale of $42 billion in 3-year notes both went well, according to analysts.
On July 31, the Treasury Department released an eye-popping $1 trillion borrowing estimate for the third quarter, which was followed the next day by Fitch Ratings’ decision to cut the government’s top AAA rating. Worries about the trajectory of U.S. finances then spilled into Thursday’s 30-year bond auction.
“The technical picture of the Treasury market heading into auctions this week was weak, and it’s not terribly good right now in the long end after the 30-year sale,” said Gregory Faranello, head of U.S. rates for AmeriVet Securities in New York. “The auction wasn’t bad, it just wasn’t as strong as the three-year or 10-year sales on Tuesday and Wednesday.”
At a time when the fiscal outlook looks worrisome, Federal Reserve policy makers are raising interest rates and shrinking the central bank’s $8.2 trillion balance sheet.
In other words, the Fed, long seen as an important buyer of Treasurys which isn’t price-sensitive, “has gone away and the buyers left now are more price sensitive,” Faranello said via phone.
“If we put all these factors into a blender, for the first time in 10 to 15 years they’re all pointing in the same way and that’s pressure on yields regardless of the inflows that come and go,” he said, adding that even financial-stability issues in March weren’t enough to keep Treasury rates down.
“Ultimately, the only reasons that yields would go lower from here is weak economic data, which we don’t have, or central bank policy which changes course. The stars are aligning the other way not just here in the U.S., but globally.”
The yield awarded at Thursday’s 30-year auction was higher than what it was going into the competitive deadline, which means demand wasn’t great. In addition, primary dealers were awarded a higher percentage of the allotment than last month, meaning “people on the sidelines didn’t show up or have much interest,” said macro strategist Will Compernolle of FHN Financial in New York. The poor reception “seemed to surprise most people and I think it’s carried on into today.”
On Friday, traders and investors continued to sell off most Treasurys after July’s producer-price report surprised to the upside.
Sub-50 Cent Price On Treasury Bond Underscores Investor Pain
* Long-Term Bonds Sold During Pandemic Hit Hard As Rates Soar
* Positive Convexity Means Debt Could Be Valuable If Yields Fall
Fifty cents on the dollar is a very low price in the world of bonds. In most cases, it signals that investors believe the seller of the debt is in such financial distress that it could default.
So when a US Treasury bond sank below that price Monday, it raised eyebrows. The security, due in May 2050, briefly touched as low as 49 29/32, marking the second time in the past two months it’s fallen below the 50-cent level.
The US, of course, is not in danger of defaulting any time soon. Treasuries are generally considered to be the safest government debt in the world.
What the price does illustrate in this case is the scope of pain inflicted on investors who piled into longer-term debt at rock-bottom interest rates during the pandemic, only to then be caught off-guard when the Federal Reserve carried out the the most aggressive monetary-policy tightening in decades.
The bond due in 2050 has been hit particularly hard, given that its interest rate — 1.25% — is the lowest ever on a 30-year Treasury. Investors got over 4% on 30-year debt issued last month.
“Those bonds have below market coupons and investors need to get compensated for it,” said Nancy Davis, founder of Quadratic Capital Management.
Treasuries maturing in 10 or more years — which have the highest price sensitivity to changes in interest rates, or duration — have slumped 4% this year, following a record 29% plunge in 2022, according to data compiled by Bloomberg.
That’s more than double losses across the broader Treasury market, the data show.
Yields on 30-year bonds hit an all-time low of 0.7% in March 2020, before rising to a 12-year high of 4.47% last month. They hovered 4.4% Monday.
The Treasury initially sold $22 billion of the 2050 securities at about 98 cents (it subsequently did two so-called reopenings, adding to the amount outstanding.) Since the bond’s debut, it’s rapidly lost value as newer ones were sold with higher coupons.
The Fed is the largest investor in the debt, holding about 19%, a legacy of its bond purchasing program known as quantitative easing. Other buy-and-hold investors such as exchange-traded funds, pensions and insurance companies also dominate.
Of course, should a decline in inflation fuel a slide in long-term yields, these bonds would just as quickly turn into an outsize winner versus the rest of the rates curve.
They also have at least one other attractive property for investors. Because of the deep price discount, the securities have what’s known as positive convexity, meaning they rise in price more than they fall for a given change in yield.
For instance, the bonds would surge about 11 cents should their yield decline 100 basis points. For a similar yield increase, the bonds would only fall about 9 cents.
“They have very positive convexity, and that make them very interesting bonds, although liquidity is probably very low,” said Mustafa Chowdhury, chief rates strategist at Macro Hive Ltd.
Treasury Yields Highest Since 2007 After US Debt Hits A Record $33 Trillion
Billionaire investor Ray Dalio cautioned that the US is at the start of a “classic late, big-cycle debt crisis” characterized by a shortage of buyers for its government bills and bonds. Veteran economist Nouriel Roubini has also expressed similar concerns.
Fitch downgraded the US’s long-term credit rating in August, citing a “steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters.”
* US National Debt Has Ballooned To $33 Trillion For The First Time.
* The Federal Government Could Face Another Shutdown By The End Of September.
* Treasury Yields Topped A 16-Year High As The Fed Ends Its Policy Meeting On Wednesday.
Treasury yields hit a 16-year high on Wednesday after the US government’s debt burden hit a record $33 trillion this week.
The surge comes as the Federal Reserve concludes its September policy meeting and is expected to hold interest rates steady.
The Fed’s rate rises in recent months have increased the cost of federal borrowing, with the rate on 10-year Treasurys standing at about 4.36%, up from as low as 0.32% in early 2020.
Federal spending increased by roughly half between 2019 and 2021, which contributed to the debt record, the Treasury Department said on Monday.
It also cited tax cuts, coronavirus stimulus packages and lower tax revenues from high pandemic unemployment as other contributing factors in the spike.
The $1.58 trillion increase since the debt ceiling was lifted in June has left some experts concerned about a potential wider crisis.
These include markets commentator Larry McDonald, who last month warned of a “mind-blowing hole” in the public finances.
Meanwhile, another government shutdown looms unless Congress come to a funding agreement by September 30.