The US government plans to borrow $100 billion in a single Treasury debt sale this week, an amount that was unfathomable 20 years ago and exceeds previously issued guidance. This unprecedented figure showcases both the magnitude of the government’s borrowing needs and the importance of its ability to attract investors.
The Treasury said it will auction $100 billion of four-week bills today and this auction is likely a harbinger of bill auctions to come as to fund the federal budget deficit. The Treasury has stated it will fund shortfalls via short term debt offerings.
To put this auction into some perspective, the government will also sell a combined $125 billion coupon bearing securities this week: $58 billion of three-year notes yesterday, $42 billion of the 10-year Treasury today and $25 billion of the 30-year Treasury tomorrow.
The demand for yesterday’s $58 billion 3-year was regarded as “tepid at best” according to Bloomberg.
It is thought the demand for the short dated securities will be robust given the $7.4 trillion held in money markets.
As opined many times, the budget shortfall is a not a revenue issue but rather a spending issue. A plethora of high-profile market luminaries have commented spending must decline or a crisis will occur. It is not a question as to if but as to when.
Interest coverage on the debt is now $1.2 trillion. Five years ago, it was $350 billion. Interest coverage is projected to exceed $2 trillion in several years if action is not taken today. As opined many times it is not a revenue issue. The government can tax billionaires at a 100% and it would not even dent the ongoing budget deficits.
Yesterday equites came under nominal pressure as the ISM Services Index nominally disappointed. The Services sector stagnated in July, the result of rising costs and reduced headcount as firms are nervous about the ultimate impact of tariffs.
The S & P is trading at “massively overstretched and concentrated valuations” and “volatility may rise considerably” if economic activity and inflation begins to wane or accelerate, respectively, according to Bloomberg.
Are these prognostications valid or be taken seriously? Some have adamantly stated we are at a Minsky Moment where stability has created extreme complacency which then leads to a crisis, the inevitability of such was extremely obvious in hindsight
Last night the foreign markets were up. London was up 0.20%, Paris up 0.26% and Frankfurt up 0.10%. China was up 0.45%, Japan up 0.61% and Hang Seng up 0.03%.
Futures are up about 0.25% amid mixed earnings and tariff angst. The 10-year is off 8/32 to yield 4.23%.
