Latest news with #fiscaldeficits
Bloomberg
16-06-2025
- Business
- Bloomberg
Japan's Bond Chaos Heralds More Volatility Across Global Markets
Japan's once-slumbering bond market has roared back to life with a burst of volatility that is echoing around the world. Major debt markets have moved in tandem with Japanese government bonds during the recent rout, with a spike in super-long yields in the Asian nation amplifying ructions fueled by global fears of widening fiscal deficits.
Reuters
09-06-2025
- Business
- Reuters
Looming US Treasury debt auctions an important sentiment test
NEW YORK, June 9 (Reuters) - U.S. Treasury auctions of notes and bonds this week are even more in focus than usual as tests of market sentiment on U.S. assets, and while investors look like keen buyers of short and medium-term debt, appetite at the long end is more dicey. These once-routine auctions have become a focus for investors as a gauge of demand, both foreign and domestic, with the July 9 deadline for the 90-day pause on reciprocal tariffs fast approaching. Aside from bills, the U.S. Treasury will sell a total of $119 billion in three- and 10-year notes, as well as 30-year bonds. The latter will be closely watched for signs that bond investors are putting their foot down and rejecting countries with huge fiscal deficits and mountains of debt. "We are now in an environment where investors are looking that could be dropping at a time when supply seems to be on the precipice of rising further," said Zachary Griffiths, head of investment grade and macro strategy at CreditSights in Charlotte. Bond vigilantes, seemingly back with a vengeance, have questioned fiscal profligacy around the world amid concerns U.S. President Donald Trump's trade war and tax cuts will fuel inflation, while the tariffs will additionally curb global growth and force governments to spend more. At the same time, last month's U.S. credit rating downgrade by Moody's is a stark reminder that the world's largest economy is courting disaster with a $36 trillion debt pile. On Tuesday, the Treasury will sell $58 billion in three-year notes, followed by $39 billion in 10-year debt on Wednesday, and $22 billion in 30-year bonds on Thursday. Overall, analysts expect these auctions to go smoothly. "The trend in these auctions has been reassuring so far," said Guneet Dhingra, head of U.S. rates strategy at BNP Paribas, in New York. "Largely the auction numbers suggest that there has been no meaningful dent in both foreign and domestic demand." Last month's three-year note auction showed solid results. Indirect bids, which include foreign central banks, took in 62% of the total issuance, lower than April's numbers, but roughly in line with the average for the last 12 auctions. Offshore investors, particularly foreign official buyers, typically gravitate toward shorter-term Treasuries, specifically those with maturities of less than five years, according to the latest U.S. Treasury survey. Jay Barry, head of global rates strategy at J.P. Morgan, wrote in a research note that foreign official institutions' focus on the front end suggested that any rotation away from Treasuries "could be realized through letting holdings run off and not reinvesting, rather than selling securities outright." In the case of the 10-year note auction on Wednesday, the outcome is a little trickier to forecast, analysts said, given that it comes on the same day as the release of the U.S. consumer price index data. However, based on auction statistics, there will be no shortage of buyers for the 10-year, analysts said. Last month's 10-year auction showed a sturdy outcome. Indirect bids took in about 76% of the total issue, higher than the 12-auction average of 72%. "The primary driver of a buyer's strike was thought to be the trade war and stepping back from the Treasury market," Ben Jeffery, vice president, interest rates trading, at BMO Capital Markets, said in a podcast on Friday. " opposite argument might be true, and that is: why would one preemptively pull back from the Treasury market, rather than demonstrate ongoing sponsorship for Treasuries as a negotiating tool? We have yet to see any clear evidence of foreign sponsorship pulling back from Treasuries." The U.S. 30-year bond auction, meanwhile, could go either way and some analysts said they would not be surprised if it comes out weaker than expected given the spate of poor long-dated sales globally. That has led to the surge in yields on the back end, particularly U.S. 30-year bonds, which hit 5.16% last month, the highest since October 2023. "The 30-year is the poster child for all the market's fiscal concerns," said BNP's Dhingra. "But if you look at the statistics available until April, you can see that the 30-year bond auction numbers have seen pretty stable demand from dealers." But last month's 30-year auction was not well-received, picking up a yield that was higher than the expected rate at the bid deadline, suggesting investors demanded a premium to purchase the bond. Indirect bids were marginally lower than the 12-auction average. The 30-year bond also did not fare well at the April auction. "Demand from foreign investors for 30-year bonds has probably plateaued," said CreditSights' Griffiths.
Yahoo
25-05-2025
- Business
- Yahoo
Vanguard chief economist explains rising deficits & the effects
Rising bond yields (^TYX, ^TNX, ^FVX) are putting fiscal deficits in the spotlight. Vanguard global chief economist and global head of investment strategy Joe Davis joins Market Domination to break down how structural debt could pressure interest rates and the broader economy. To watch more expert insights and analysis on the latest market action, check out more Wealth here. Do me a favor, Joe. Can you spell out for people who are watching, viewers who are watching who are not as steeped in the arcana of the bond market, why this is so important? Because for years, we have heard, um, concerns raised about these deficits and the potential effects and we haven't really seen those come to fruition. Why might that happen? And what could they be? Sure. Sure. Should I give you three points? You know, one is, for anyone who hears the phrase deficit, that's just a gap between the taxes that a government brings in and then what is its spending on social programs, national defense, and interest costs. A deficit obviously, you're spending more than you bring in. Um, you know, when you're during when during recessions or periods of war, we've seen very high deficit levels and they don't necessarily have any impact on interest rates. You know, they're they're generally viewed as temporary unfortunate events, if it's a war or a recession, but they don't have this permanent effect of the the debt levels growing at an increasing rate. However, if it's what's called what's what economists call structural, which means every year, whether the economy is strong or not, we have, uh, uh, deficits growing. And part of the reason for that is, you know, we have strong commitments from Social Security, Medicare, Medicaid, and we have tax rates that don't fully cover those costs. And so, um, in our framework, uh, that is what can have an impact on interest rates, higher borrowing costs for the for the Treasury to issue debt, and then all the interest rates tied to that, mortgage rates, auto loans and so and so forth again. We're not at alarming levels yet. I don't think we'll be there tomorrow, but we started putting our finger on this dynamic two years ago. And so if we do not see a stabilization in our deficit levels, uh, we could see further upward pressure, uh, on the bond market. And that's precisely the scenario we talk about, uh, in the book released today.
Globe and Mail
24-05-2025
- Business
- Globe and Mail
Bond Market (TLT) Anxiety Grows as Moody's Downgrades US Credit Rating
U.S. long-term borrowing costs are climbing sharply as bond markets express mounting anxiety about America's ballooning fiscal deficits. The term premium on 10-year Treasuries (TLT)—extra compensation investors require to hold long-term bonds—approached 1%, a level unseen since 2014. Investors' unease was exacerbated by Moody's downgrade of U.S. sovereign debt and weak demand in recent Treasury auctions, reflecting skepticism toward the nation's widening budget gap and surging debt burden. This week's turmoil was amplified by the U.S. House passing a multitrillion-dollar extension of Trump-era tax cuts, raising fresh fears that the nation's fiscal trajectory is unsustainable. As 30-year Treasury yields briefly touched 5.15%, their highest level in nearly two decades, markets sent a clear message: investors are demanding greater compensation for taking on long-term U.S. debt, which historically was considered the world's safest asset. Market Overview: 10-year U.S. Treasury term premium nearing highest levels since 2014 30-year yields surge past 5%, reflecting deepening fiscal concerns Global bond yields also rising amid deficit worries and inflation fears Key Points: Moody's downgrade and weak Treasury auctions amplify debt market anxiety Trump's extensive tax cuts exacerbate fears of unsustainable borrowing Investors shifting away from U.S. assets due to persistent policy uncertainty Looking Ahead: Long-term borrowing costs likely to remain elevated amid fiscal uncertainty Risk of foreign central banks selling U.S. Treasuries increases as yields rise globally Persistent market volatility expected unless U.S. fiscal policy regains investor confidence Bull Case: Despite Moody's downgrade and rising yields, some prominent Wall Street strategists view any resultant dip in stocks as a buying opportunity, particularly if broader geopolitical conditions, like trade truces, show signs of improvement. The U.S. has a history of effective monetary policy led by an independent Federal Reserve, which can help navigate economic challenges and mitigate the impact of fiscal concerns on markets. The Treasury Secretary has downplayed the immediate impact of the Moody's downgrade, expressing confidence that administration policies will spur economic growth capable of managing the debt burden. While rising yields increase borrowing costs, higher yields on U.S. Treasuries could, in some scenarios, attract certain investors seeking better returns, potentially supporting demand for U.S. debt if risk perceptions stabilize. Stock markets have demonstrated resilience, with instances of investors buying on dips, suggesting underlying confidence in U.S. corporate performance or the broader economy's ability to absorb shocks. Bear Case: Sharply rising U.S. long-term borrowing costs, with the 10-year Treasury term premium nearing its highest since 2014 and 30-year yields surpassing 5.15%, reflect deep investor anxiety about America's ballooning fiscal deficits and surging debt burden. Moody's downgrade of U.S. sovereign debt and weak demand in recent Treasury auctions amplify concerns that the nation's fiscal trajectory is unsustainable, potentially leading to persistently higher borrowing costs for the government, businesses, and consumers. The U.S. House passing a multitrillion-dollar extension of Trump-era tax cuts adds to fears of an unmanageable deficit, which the Congressional Budget Office estimates will significantly increase the national debt. There are growing signs of foreign investors retreating from U.S. assets due to persistent policy uncertainty and fiscal risks, which could trigger a dangerous feedback loop of rising yields and diminishing demand for U.S. debt. Turmoil in other major bond markets, such as Japan, where yields are hitting multi-decade highs amid concerns over its own fiscal health and changing monetary policy, could reduce global demand for U.S. Treasuries as domestic Japanese bonds become more attractive or as carry trades unwind. The traditional status of U.S. Treasuries as the world's safest asset is being challenged, with investors demanding greater compensation for taking on long-term U.S. debt, signaling eroding confidence in U.S. fiscal management. Sustained high Treasury yields (e.g., 10-year above 4.5%) can pressure stock valuations and create headwinds for the equity market. Japan's bond market also encountered significant turmoil, as reduced purchases by the Bank of Japan and escalating inflation drove yields to their highest levels since the 1990s. Japanese policymakers warned of potential instability, suggesting government intervention may become necessary if conditions worsen. Strategists highlight that Japan's bond woes could spill over into global markets, notably impacting demand for U.S. Treasuries. Going forward, sustained pressure on bond yields underscores deep-rooted skepticism about the ability of governments, particularly the U.S., to manage their spiraling debts amid higher interest rates. Investors now confront a market in which traditional safe havens are increasingly viewed as risky, raising the stakes for policymakers globally. As fiscal uncertainties deepen, expect the trajectory of U.S. debt costs to play a critical role in shaping investor sentiment in the months ahead.
Reuters
21-05-2025
- Business
- Reuters
IMF's Gopinath urges US to curb fiscal deficit, FT reports
May 21 (Reuters) - International Monetary Fund First Deputy Managing Director Gita Gopinath said U.S. fiscal deficits are too large and the country needs to tackle its "ever-increasing" debt burden, according to an interview published by the Financial Times on Wednesday. Gopinath told the FT that the U.S. was still impacted by "very elevated" trade policy uncertainty despite positive developments such as President Donald Trump's administration rolling back tariffs on China and striking a U.S.-UK economic deal. In April, the IMF slashed its U.S. growth forecast along with most other countries over the impact of U.S. tariffs, while warning that further trade tensions would slow growth further. "It is absolutely a positive to have lower average tariff rates than the ones we assumed in [April] . . . but there is a very high level of uncertainty, and we have to see what the new rates will be," Gopinath told the FT. The comments came as Trump is proposing to extend tax cuts passed in his first term in 2017 and to add new tax breaks. Moody's also downgraded the U.S. sovereign credit rating last week due to concerns about the nation's growing, $36 trillion debt pile. The ratings agency cited the failure of successive U.S. administrations and Congress to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.
