From Breakingviews - Treasury buyers live for the moment, unfortunately
by the House of Representatives on Wednesday, solves the most immediate threat to the government’s creditors. That has been enough to bring investors back to bonds they had temporarily treated with uncharacteristic caution. The 10-year Treasury yield dropped to its lowest level since May 17 on Wednesday. For Treasury bills due just one day after June 5, the day when the government could have defaulted without a political accord, yields fell to 5.
The Federal Reserve’s fight against inflation also stands to knock Treasury prices, while pushing up yields. The central bank has signaled that it won’t cut interest rates. That’s in opposition to the market, which expects rates to start falling in December, according to derivatives pricing tracked by Refinitiv. The longer rates stay high, the longer investors will push for greater returns from Treasuries.
Bondholders have a more existential problem to consider as well. Spending caps and other measures in the debt ceiling deal are projected to save $1.5 trillion over the next decade, the Congressional Budget Office said Tuesday. That’s just 7% of the $20 trillion deficit Uncle Sam is forecasted to run over the same period. Without more comprehensive savings or increased revenue, Washington will continue to spend far more than it brings in and charge toward another next debt-ceiling standoff.
The U.S. House of Representatives voted 314-117 on May 31 to suspend the debt ceiling, a legislative cap on how much the Treasury can borrow that had been set at $31.4 trillion. The legislation now moves to the Senate, where lawmakers are expected to enact the measure and advance it to President Joe Biden’s desk before the default deadline.
The U.S. federal government has run a $925 billion budget deficit in the fiscal year to date, according to the Treasury Department, $565 billion higher than the same period in the previous fiscal year.Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
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