The U.S. Treasury Building in Washington, DC, on August 15, 2023.
Nathan Howard | Bloomberg | Getty Images
As if the 2024 bond meltdown wasn’t bad enough, fixed-income investors will face multiple challenges in the year ahead, including looming concerns about the upcoming maturities of short-term notes.
Nearly $3 trillion in U.S. debt is expected to mature in 2025, much of it short-term debt that the Treasury Department has issued heavily over the past few years.
With the government expected to try to lengthen the debt maturities as it rolls over, it could create another headache if markets are not prepared to absorb what is expected to be a massive issuance of U.S. Treasury debt as the U.S. has provided debt financing in recent years. funds.
“If you assume we’re going to have trillion-dollar-plus deficits after 2025, eventually cumulatively, that’s going to overwhelm Treasury issuance,” said Tom Tzitzouris, head of fixed income at Strategas Research Partners. explain Tuesday’s CNBC program “Scream Box.
Strategas estimates there is currently $2 trillion in “excess” Treasuries in the $28.2 trillion Treasury market.
“Those funds are going to have to be gradually scooped out and thrown into the majority five- to 10-year part of the curve, which is probably a bigger concern for the market right now than next year’s deficit,” Tzitzouris said.
Typically, the Treasury likes to keep note issuance at more than 20% of total debt. However, in recent years, with the continuous Debt ceiling and budget battle The Treasury Department needs to raise cash immediately to keep the government running.
2024, Treasury bond issuance According to data from the Securities Industry and Financial Markets Association, as of November, the total financial market was $26.7 trillion, an increase of 28.5% from 2023.
finance minister Janet Yellen Earlier this year, the department came under criticism from congressional Republicans and economist Nouriel Roubini, who accused it of issuing so many bills to keep short-term funding costs low and to keep short-term financing costs low. An election year boost for the economy. President-elect Donald Trump’s pick for Treasury secretary Scott Bessant Was also one of the critics.
However, yields have surged since late September, just after the Fed took the unusual step. Reduce base borrowing rate Half a percent.
It’s been a miserable year for the Treasury market as yields and prices move in opposite directions. this iShares 20+ Year Treasury Bond ETF (TLT) Loss of more than 11% in 2024, compared with growth of 23% in the same period S&P 500 Index.
With traders now pricing in smaller rate cuts and investors dealing with a flood of issuance, it could be another challenging year for fixed income.
“Next year’s deficit should actually be significantly lower than in 2024,” Tzitzouris said. “So scooping up and throwing away these bills is more of a concern right now.”
