U.S. bond market takes looming Treasuries deluge in stride - Debt 120% of GDP
S E E D E D C O N T E N T
NEW YORK (Reuters) - U.S. government debt supply will likely continue to boom, but bond market investors seem to be taking it in stride.
The Treasury Department is having to sell more debt to finance the government’s ballooning deficit, stemming from the massive federal tax overhaul in December and the spending deal passed in February. Still, bond yields have remained in a narrow range, suggesting investors may not be fretting about the swelling debt supply.
“There will be no relief from supply especially from bills going into October,” said Tom Simons, money market strategist at Jefferies & Co in New York. Supply is expected to run high at least until the Treasury provides updated forecasts on its borrowing needs, next due in November - and might even accelerate further.
This week, the Treasury will sell $34 billion in three-year notes, with $26 billion in 10-year debt on Wednesday and $18 billion in 30-year bonds on Thursday. It will also auction $51 billion in three-month bills and $45 billion in six-month bills, together with an expected $65 billion in one-month bills.
The supply will fall short of a record week of $294 billion set in March but continues a trend higher since February.
Analysts, who said the market would have no trouble digesting this week’s offerings, see the government as becoming increasingly dependent on private investors for cash as the Fed further reduces its bond holdings. The goal is to shrink a balance sheet that had grown to more than $4 trillion from three massive rounds of asset purchases to combat the previous recession.
“I think they will go fine,” Matt Freund, head of fixed income strategies at Calamos Investments in Chicago, said of this week’s debt auctions.
Analysts projected that supply will continue to climb, and that March’s record-setting weekly amount would be eclipsed in the coming weeks.
The Treasury said on July 30 it expected to borrow $56 billion more during the third quarter than its earlier estimate, resulting in issuing $329 billion in debt securities during this period.
For a graphic on U.S. debt to GDP ratio, click reut.rs/2KnfGbJ
FOCUS ON OTHER RISKS
The government’s rising debt load is a long-term concern for investors, but it is not atop their list of pressing worries.
The trade dispute between Washington and Beijing and the pace of Federal Reserve’s interest rate increases pose far graver threats to markets and the economy than more government IOUs, analysts said.
“It is a really, long-term powerful narrative, but when is it going to bite?” Calamos’ Freund said.
As long as the U.S. economy hums along and its bond yields are higher than most of its peers, appetite for U.S. Treasuries should remain solid in the foreseeable future, according to most analysts. Mild inflation and the Fed staying on a gradual rate-hike path also support U.S. bond demand, the analysts have said.
“From an absolute yield perspective, where else are you going to go?” said Eric Souza, senior portfolio manager at SVB Asset Management in San Francisco.
On Friday, benchmark 10-year Treasury yield slipped over 3 basis points at 2.952 percent following a mixed July payrolls report. Yields move inversely to prices.
The U.S. 10-year yield is running 2.50 percentage points above its German counterpart and 2.85 points higher than Japanese 10-year yield.
The U.S. budget gap is forecast to hit $1 trillion in fiscal year 2020, compared with $804 billion in the fiscal 2018, according to the Congressional Budget Office.
Given the growing deficit, the government has ramped up its issuance of bills and shorter-dated coupon debt to meet its funding needs after the suspension of the federal debt ceiling earlier this year.
For a graphic on U.S. Treasury bill issuance, click tmsnrt.rs/2O8Ob8n
For a graphic on U.S. Treasury 2018 coupon issuance, click tmsnrt.rs/2vgR0vZ
For an interactive graphic on U.S. budget deficit, click tmsnrt.rs/2qwtdqk
Reporting by Richard Leong; Editing by Tom Brown
How much longer can we go on, it's going to start biting sometime.
Hasn't "BIT" in decades, and decades !
Government hasn't hit the "Poison Mark so far.....apparently !
Keynesian theory has been spot on for quite a few years now.
The Obama Stimulus contained some tax cuts, more to ensure Republican support than for any real economic utility. More importantly, it contained the means to create or protect employment, and thus stop the bleeding.
When the economy is bad, the government must spend to maintain activity, including deficit spending.
When the economy improves, the budget should run surpluses, to recover those deficits.
In other words, Trump’s budgets should have surpluses. Instead, they have huge deficits due to tax cuts.
At the rate that we are spending and the tax cuts I don't see us reversing the deficit spending program for quite some time, if at all.
A deficit comes from
- too much spending,
- too little revenue.
The Trump Administration has
- raised spending,
- reduced revenue.
So... I think you're safe in saying that it'll be a while before the deficits are reversed...
Just you watch. They're doing it intentionally to create a fiscal crisis in order to justify cutting social programs like Social Security, Medicare and Medicaid.
It's some genuine in-your-face bad faith governance.
Of course. This has been the method since Reagan:
- Reduce taxes, lowering revenue
- Raise spending (primarily military)
- Observe that Hey, there's a huge deficit! Panic! The sky is falling! We MUST reduce the deficit! The only home for the future is to cut welfare spending! Panic! Panic!
- Rinse, repeat...
Paul Ryan wet dream come true along with other RWer's.
Ryan has been wanting to do that for a long time. With him being gone in November, I imagine others are more than willing to pick up that torch.
They are probably also waiting until after the midterms to do anything there. Have to get the votes of the gullible before they screw them over.
Not even.
If Trump blesses a cancelation of all of the benefits that his Believers receive... they will praise him for it.
That's ALWAYS been the bottom line...for DECADES !!
Too many personal "WANTS" create that PROBLEM:
"And so, my fellow Americans: ask not what your country can do for you — ask what you can do for your country."
TOTALLY "LOST" THROUGHTOUT THE DECADES for sure !
What Trump is trying to do, yet Liberals HATE :
"My fellow citizens of the world: ask not what America will do for you, but what together we can do for the freedom of man."
Please don't truncate my words.
The "Too much spending" has always been the main problem. How is that "Truncating" YOU ?
Any "Capitalist" business that runs a business like that....GOES OUT OF BUINESS EVENTUALLY !
Seems to me....Big Gov. needs to STOP giving out EVERYTHING and start actual governing in order to stay in "Business" !
"And so, my fellow Americans: ask not what your country can do for you — ask what you can do for your country."
Exactly right. You don't cut taxes between downturns when the economy is growing again. If changes are made they should be in the other direction, to help pay for relief expenses incurred during the previous downturn, and also to put you in a stronger position to handle the next one. Apparently, Republicans have forgotten that you're supposed to make hay when the sun shines, because winter is always coming...
Everything they do shows how irresponsible they are, and how unfit they are to govern.
What happens if the rest of the world finds the US to much of a financial risk.
I always heard republicans say that the government should be run like a business yet I do not know of any business that could stay afloat having to constantly borrow an ever increasing amount.
Plus the man they put in charge has had 5 bankruptcies. I don't think our government could do that and wipe the slate clean.
When it does bite, it's going to be really painful, Ender.
No we cannot. Our country is not a business.
That is a great question... to which no one has an answer. For the moment, T-bonds are solid. Easily sold even with a teeny-tiny interest rate, because of... confidence in America's Good Faith. Should that waver.......
Thus we are able to keep growing and financing our debt, until ????
The Shadow Knows.........