Today the Federal Reserve holds $4.45 trillion U.S. Treasuries on its balance sheet, a whopping 550% increase over the past 20-years. While this may sound like a stark increase, and it is, the Fed’s holdings of U.S. Treasuries have not kept up pace with the increase of U.S. Treasury debt outstanding which has surged more than sixfold during the same period. Of the $27 trillion of marketable U.S. Treasury debt outstanding, the Fed now holds nearly 17%, down from the 25% peak reached at the end of 2021, and perhaps surprisingly to most, in line with the pre-global financial crisis (GFC, 2002-2007 average) era.
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" BREAKING: U.S. Treasury Yields Have SURGED To 4.34% - Highest Level Since Before The Global Financial Crisis (2007) 🤯 But why are treasury yields surging? Here's the breakdown: • Investors are pricing in a new regime. A regime with higher inflation and higher for longer interest rates. And investors are demanding more compensation for that risk. • A stronger and more resilient U.S. economy with growth surprising to the upside in 2023. Unemployment is still at historic lows of 3.5%, there is a healthy fiscal backdrop, consumers are still spending* and homeowners are locked into low fixed-rate mortgages. • The Fed is keen on persisting with more hikes and not declaring victory on inflation too soon. TIPS are at their highest since 2009 (>2%), indicating that the inflation-adjusted cost of borrowing is going up - this is restrictive. • Fitch's downgrade of U.S. debt highlighted concerns about politics, fiscal spending, growing debt issuance and an increasing debt servicing burden to fund deficits. • China has cut their treasury holdings to a 14-year low, and Saudi Arabia has also dumped U.S. debt to a 6-year low. • Japanese yields are also rising, which makes U.S. debt relatively speaking, less attractive. • The Fed is also performing quantitative tightening (QT) which means that they are reducing the size of their balance sheet: either by selling existing holdings or letting holdings run off/mature. In short, less demand and more supply. Over to you, Mr Powell. Ouch. " --Source : https://lnkd.in/dX9Ftkw3
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WILL INTEREST RATES GO UP OR DOWN? - In this week's review of the U.S. debt market, I explain why the Fed might end up raising interest rates this year: https://lnkd.in/ghKNbtWt
Euros & Dollars: U.S. Takes Break from Debt-Crisis Threat
https://europeanconservative.com
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Président du conseil/ Chair of the Board Collège des administrateurs de Sociétés Membre exécutif Association parlementaire OTAN-Canada/NATO-Canada PA executive member
A step-up in borrowing by the US government has deepened a decline in bond markets that has sent yields to their highest point since 2007. Much of the recent bond rout reflects a shift in expectations about the future path of interest rates and economic expansion. « Friday’s data showing strong US jobs growth heaped further pressure on bond prices, as it added to the anxiety that interest rates will need to stick at high levels to defeat inflation. But investors and analysts say a recent deluge of new debt hitting the market has also pushed yields higher, particularly on longer-dated bonds that have been hit hardest. Demand from big Treasury buyers such as foreign investors, foreign central banks and US banks has meanwhile remained stagnant. » Extracts from FT article enclosed below.
Huge US government borrowing adds to bond market pain
ft.com
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Sales Director | 10 Years in Data & Technology Sales at S&P Global | Information Services | Solution Selling | SaaS B2B | Driven by Grit, Curiosity & Growth
U.S. Treasury Yields Touch 4.34% - Levels Unseen Since Pre-Global Financial Crisis in 2007! 📈 Wondering about this spike in treasury yields? Let me break it down: 📌 A New Financial Landscape: Markets are anticipating extended periods of higher inflation and steeper interest rates. This has resulted in investors wanting more bang for their buck - a higher return for increased risk. 📌 Robust U.S. Economy: 2023 has showcased a resilient U.S. economic performance. Remarkable growth, unemployment at a mere 3.5%, consistent consumer spending, and the majority of homeowners enjoying low fixed-rate mortgages form the silver lining. 📌 The Fed's Stance: They aren't taking their foot off the pedal just yet. The Fed appears committed to more rate hikes, aiming to keep inflation in check. TIPS, at their zenith since 2009, signify the rise in inflation-adjusted borrowing costs. 📌 Credit Rating Concerns: Fitch's recent downgrade of U.S. debt underscores potential issues related to political dynamics, escalated fiscal expenditure, the uptick in debt issuance, and the associated challenges of managing this growing debt. 📌 Global Treasury Adjustments: Both China and Saudi Arabia have trimmed their U.S. debt holdings, reaching lows not seen in 14 and 6 years, respectively. 📌 Shift in Global Interest: With Japanese yields on the uptrend, U.S. debt, comparatively, loses some of its allure. 📌 Fed's Quantitative Tightening: A move towards reducing the Fed's balance sheet size - be it through selling existing assets or by allowing them to mature - further impacts the landscape.
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How easily can investors digest a deluge of new Treasury bond supply over the coming months? Our latest Aerial View article explores how some of the biggest buyers have pulled back, and how the additional supply could keep yields higher than markets expect—even if the Fed cuts rates.
See the Latest From Aerial View
https://aerialviewbites.certainty-bnymellon.com
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This is interesting: A record $9.3 TRILLION US Federal debt will mature and must be refinanced at much higher rates over the next 12 months. This is up by a massive $4.7 trillion or 102% in just 4 years. This comes as the US Treasury switches to issuing shorter-dated maturity bonds with lower interest. As a result, a record ~33% of debt outstanding has a maturity of less than a year. Meanwhile, the Fed has dumped ~$1.3 trillion of Treasuries (QT) off of its balance sheet in 2 years while foreign government demand for US bonds has declined. Will THIS be the reason for a rate cut?
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Adding these three components together, we get a range for the nominal neutral rate (inflation expectations plus r*) of 2.5–3.5%, which, adding the term premium, gives us a central estimate for the equilibrium 10-year US Treasury yield of 3.5%
Are higher debt and higher rates the new normal?
ubs.com
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How easily can investors digest a deluge of new Treasury bond supply over the coming months? Our latest Aerial View article explores how some of the biggest buyers have pulled back, and how the additional supply could keep yields higher than markets expect—even if the Fed cuts rates.
How easily can investors digest a deluge of new Treasury bond supply over the coming months? Our latest Aerial View article explores how some of the biggest buyers have pulled back, and how the additional supply could keep yields higher than markets expect—even if the Fed cuts rates.
See the Latest From Aerial View
https://aerialviewbites.certainty-bnymellon.com
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46K Followers ⎮ Founder at FINANCIAL NETWORKING GROUP ⎮Options & Futures Broker at Market Securities
🚨🇺🇸INTERESTING…A record $9.3 TRILLION US Federal debt will mature and must be refinanced at much higher rates over the next 12 months. This is up by a massive $4.7 trillion or 102% in just 4 years. This comes as the US Treasury switches to issuing shorter-dated maturity bonds with lower interest. As a result, a record ~33% of debt outstanding has a maturity of less than a year. Meanwhile, the FED has dumped ~$1.3 trillion of Treasuries (QT) off of its balance sheet in 2 years while foreign government demand for US bonds has declined.
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