US Treasury Bond Prices Plummet Amid Government Borrowing Plans

US Treasury bond prices have experienced a significant decline as a result of the US government’s aggressive borrowing strategy, pushing yields to their highest levels since the global financial crisis. Between August and October, the yield on benchmark US Treasuries increased by a full percentage point, defying expectations that the Federal Reserve’s interest rate hikes were coming to an end.

Investors are bracing for sustained high interest rates in the US, supported by a strong economy and new debt issuance aimed at addressing a considerable budget deficit. The International Monetary Fund (IMF) forecasts that the US federal budget deficit will exceed 8% of GDP this year, with net borrowing projected to remain elevated at 7% of GDP over the next five years.

Janus Henderson highlights the unsustainable fiscal approach as a key factor fueling concerns about bonds. With the Federal Reserve ceasing bond purchases and holding over $7 trillion in long-term debt securities, demand has diminished.

The US Treasury’s plan to issue $1 trillion in bonds over the next three months has intensified worries among buyers. Concurrently, Japan has reduced its Treasury holdings by 6%, and Chinese ownership has dropped by 14%. However, analysis from Goldman Sachs indicates that American households and hedge funds now comprise 9% of the Treasury market.

T Rowe Price points out that the increase in supply is problematic for bond yields and raises concerns among large investors regarding the US Treasury market.

On the other hand, firms like Jupiter Asset Management, Academy Securities, and various commodity trading advisers maintain that US Treasuries will consistently attract demand due to their critical role in the global economy.

This article was generated with the assistance of AI and reviewed by an editor.