ICYMI: The Canary in the Coal Mine - Weak Demand for Treasuries
Due to President Biden’s blowout spending and lack of seriousness about deficits and the debt, concern about our nation’s fiscal trajectory is now at the forefront. That concern is affecting treasury markets, where fewer market participants are willing to purchase treasuries, sending yields skyrocketing.
Word on the Street (via Markets Insider):
- “A string of recent Treasury bond auctions saw a major slump in investor demand, and that could be a harbinger of a trend that sends yields higher, strategists said.”
- “…worries about a lack of demand for Treasurys could allow rates to re-test recent highs, with 10s potentially making a run at the 5% mark.”
- While some market experts believe that, “…bond yields could already be at the right levels to bring back demand,” others, such as Bill Ackman, Larry Fink, and Bill Gross are, “predicting highs above the 5% threshold.”
- What’s driving this trend? “…such outlooks are driven by their concerns over high future inflation.” While inflation has moderated some from its peak, fear over the U.S.’s fiscal trajectory is driving the rest of the run-up.
- “Meanwhile, a potential US debt crisis — a fear that has helped drive the sharp Treasury sell-off since August — is not an inevitable scenario […] though it is a real concern […] if left unaddressed, the fiscal situation will reach a breaking point that could send the US into some form of default, Penn Wharton recently predicted.”
The Big Picture:
President Biden’s reckless spending is pushing interest rates even higher.
Foreign nations and domestic investors alike are growing increasingly concerned about the long-term solvency of the United States, forcing the US to raise the rates it pays on its debt to attract buyers, sending interest rates ever higher.
The consequences of this include higher rates on mortgages and car payments, slower economic growth due to an ever-higher debt profile, and rising interest costs on the federal debt that crowds-out other spending on important items like defense and social security and threatens the country's fiscal solvency.
The Bottom Line:
It’s time to right the ship – Democrats’ blowout spending and lack of fiscal restraint has caused investors to lose faith in US treasuries resulting in a rapid run-up in yields to entice buyers, which raises interest rates and threatens the US’s fiscal solvency.
House Budget Republicans have a plan to rein in spending, tame runaway deficits, grow the economy, and reduce interest costs on the debt. It’s time to “Reverse the Curse” and pass the committee’s Budget Resolution, before it’s too late.
