According to TD Securities analyst Gennadiy Goldberg, concerns about the demand for Treasury bonds are being stoked by foreign purchasers, and the prospect of enormous government deficits is rising.
He mentioned in an interview with Insider that rising global yields might put pressure on US rates to rise in order to remain competitive.
“It’s also not helped by the fact that we can’t seem to get our deficits under control, and they keep exploding,” he stated. And that’s not good news for anybody, particularly on the other side of the globe. Every foreign investor I’ve lately spoken with is really worried about how the US deficit is going.”
The caution comes as it is anticipated that government expenditures will continue to increase US debt, with some analysts even speculating about a possible default. Due to a decline in fiscal governance, Fitch Ratings lowered the US credit rating in August.
Indeed, following a huge bond sell-off last month that saw rates on US bonds reach 17-year highs, yields have dramatically declined during the past week. However, there are still concerns in the bond market, as seen by the poor demand for longer-dated Treasurys at multiple auctions. The 10-year and 30-year bond auctions on Wednesday and Thursday will be a crucial test.
In the meanwhile, just as supply is about to increase, a significant advisory committee to the Treasury Department cautioned in a report this week that there are preliminary indications of declining demand.
According to Goldberg, another obstacle to US Treasury demand is the global increase in rates.
“It’s really this move higher in global interest rates that’s got a lot of investors worried, because, for the longest time after 2008, the US was the only game in town in terms of higher yield,” he stated to Insider. Both Japan and Europe experienced negative interest rates. Much of that has passed.”
As a matter of fact, China and Japan are the two countries with the most amount of US.
That’s because the Japanese government is trying to move away from an extremely loose monetary policy, which may compel investors to switch from holding Treasury securities to Japanese bonds.
Beijing could be forced to dump additional Treasurys if the Chinese currency continues its downward trend. The amount of money that China has genuinely sold or has been transferred to other accounts is up for discussion, but the danger of Beijing and Tokyo selling is substantial.
“It’s more so the threat of them selling more assets that’s, I think, more destabilising for markets,” Goldberg stated.