Nice read in the FT today about the U.S. Treasury market. (There's Trump in the headline, mostly I imagine for clickbait or SEO, but not really in the article.)
After a decade of ZIRP and years of money-printing during 'rona, there's plenty of global capital sitting pretty in Treasuries:
The Treasury market has already absorbed big increases in supply without too much drama, having doubled in size over the past decade. In recent years it has also weathered several threatened and actual government shutdowns over funding bills.
Will this last forever? Who knows!
nobody can say for sure at what point investors might start pushing back against the administration. As Mark Sobel, a former US Treasury official and US chair of think-tank OMFIF, puts it: “Is the debt financeable? It is, until it isn’t.”
The sheer size of the Treasury market and the diversity of its owners means that other buyers are likely to step in readily where gaps do appear — although the wider market backdrop will dictate the price.
Also, as we saw in the UK gilt market debacle in 2022, bond markets can punish irresponsible/non-credible fiscal policies very fast
The downfall of UK prime minister Liz Truss in 2022 served as a reminder that investor acquiescence in unorthodox or unexpected fiscal policy cannot be taken for granted — even if the $28tn total of US Treasuries in issue is more than eight times the size of the gilt market. [...] similar fears about fiscal profligacy and disregard for the norms of economic policy articulated in the early days of Trump’s first administration turned out to be largely unfounded.
Tariffs might increase prices, and/or reduce economic activity, both (or either?) can pull the Treasury yields in different directions. We'll see, too, how successful DOGE becomes in shrinking spending and whether Congress gets its shit together and slashes other unnecessary spending (read: all of it.)
A little bit of an oversight not to consider stablecoins here (#891464), but OK; can't get everything.
non-paywalled here: https://archive.md/uKUAu