Yields Melt Up: Treasury Duration Hitting Markets Now
New Treasuries must be funded. Where will the money come from?
Dear readers,
The United States government’s credit rating was just downgraded from AAA. Again, just by another agency. Jokes aside, ratings agencies are simply lagging indicators on market fundamentals. In the case of the United States, debt to GDP of 118% doesn’t exactly scream AAA, and so a downgrade doesn’t tell anything we couldn’t already see for ourselves. Markets also don’t care—they price in events months and years before ratings agencies react. Headlines on the downgrade were a day too early to capture the real story: the US Treasury is about to hit the market with a debt bomb.
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Today’s topics
Treasury announced its auction sizes for Q4, totaling $921 billion.
Most important is the $338 billion in net increase.
Stage is set for QT to finally have its desired impact.
Yields are currently melting up: 10s are closing in on cycle highs.
US has non-recession-era record level of fiscal deficit.
5s30s yield curve steepening brings much danger.
Private hands to be stuffed
Yesterday, we received crucial market information from the Treasury department—sizes of Treasury auctions in October, November, and December. Sizes of all individual tenors, or maturities, increased from current levels, and the total for the quarter will be $921 billion.
Total issuance is less important than net issuance, which is the quantity to which markets reacted. Before we dig into the numbers, let’s explain why.
