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The struggling bond market begins 2025 with difficult debt problems


The US Treasury Building in Washington, DC, on August 15, 2023.

Nathan Howard | Bloomberg | Getty Images

As if the bond performance in 2024 wasn't bad enough, fixed income investors face a number of challenges in the coming year, including one under-the-radar concern about short-term notes to come

Nearly $3 trillion of US debt is expected to mature in 2025, much of it of a short-term nature that the Treasury Department has been issuing large amounts of over the past few years .

With the government expected to try to extend the length of that debt when it comes time to roll it over, it could provide another headache if the market isn't willing to accept what is already expected. as a massive release of the Treasury as the US finances almost all money. A $2 trillion budget deficit.

“If you accept that we're going to run trillion-dollar deficits beyond 2025, eventually, together, that will overwhelm the T-bill issuance,” said Tom Tzitzouris, head of revenue-a- in based at Strategas Research Partners. said Tuesday on CNBC's”Squawk Box.”

Strategas estimates that there is now $2 trillion in “excess” Treasury bills in the $28.2 trillion Treasury market.

“These will have to be phased out and thrown out into the five to 10 year portion of the majority curve, and that's probably more of a concern to the market right now than the shortage of next year,” Tzitzouris said.

Usually, the Treasury likes to keep bills out to just over 20% of total debt. But that share has risen higher in recent years amid succession fight over the debt ceiling and budget and the Treasury needs to raise money immediately to keep the government running.

In 2024, Issuance of Treasury Department a total of $26.7 trillion through November, an increase of 28.5% from 2023, according to the Securities Industry and Financial Markets Association.

Secretary of Finance Janet Helen faced criticism earlier this year from congressional Republican and economist Nouriel Roubini, who accused the department of issuing so many bills in an effort to keep near-term financing costs low and the goose of economy during an election year. Scott Bessent, President Donald Trump's choice for Treasury Secretary, he was also among the critics.

However, yields have risen since late September, just after the Federal Reserve took the unusual step reducing their benchmark lending rate by half a percentage point.

With yields and prices moving in opposite directions, it has been a miserable year for the Treasury market. The iShares 20+ Year Treasury Bond ETF (TLT) stock price history lost more than 11% in 2024, compared to a gain of 23% for the S&P 500.

With traders now pricing in a shallower path of rate cuts, and investors left to deal with inflows, it could be another challenging year ahead -in fixed.

“The deficit next year should come down substantially compared to 2024,” Tzitzouris said. .”

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