The Deteriorating US Fiscal Situation

Apollo Chief Economist

Where would the first signs of US fiscal stress appear in markets?

1) Tailing Treasury auctions, lower bid-to-cover ratios, or softer demand from interest rate-sensitive buyers.

2) Rating agencies issuing opinions about the deteriorating US fiscal situation.

3) The term premium trending higher.

Our latest chart book looking at demand and supply of Treasuries is available here.

As the Fed was raising rates, US households were big buyers of US Treasuries. But this trend is now reversing
Source: FFUNDS, Haver, Apollo Chief Economist
Auction sizes growing in 2024
Source: Bureau of Public Debt, Haver Analytics, Apollo Chief Economist
Downside risks to bid-to-cover ratios in 2024
Source: Bureau of Public Debt, Haver Analytics, Apollo Chief Economist
T-bill issuance dominates
Source: SIFMA, Haver Analytics, Apollo Chief Economist
Under current policies, government debt outstanding will grow from 100% to 200% of GDP
Source: CBO, Haver Analytics, Apollo Chief Economist
A record-high $8.9 trillion of government debt will mature over the next year
Source: Treasury, BEA, Haver Analytics, Apollo Chief Economist
Who owns the $25 trillion in Treasuries outstanding? Foreigners, mutual funds, and the Fed
Source: FFUNDS, Haver, Apollo Chief Economist
Switzerland, Japan, Korea, and US have high domestic ownership of government bonds
Source: IMF, Apollo Chief Economist. Note: Data as of Q2 2023.
As the Fed was raising rates, US households were big buyers of US Treasuries. But this trend is now reversing
Source: FFUNDS, Haver, Apollo Chief Economist
Foreign purchases of Treasuries come mainly from the private sector
Source: Treasury, Haver Analytics, Apollo Chief Economist
The share of T-bills on the Fed balance sheet is much smaller than T-bills as a share of outstanding marketable debt
Source: Treasury, FRB, Haver Analytics, Apollo Chief Economist
Government debt servicing costs currently make up 12% of government spending
Source: Treasury, OMB, Haver Analytics, Apollo Chief Economist. Note: OMB estimates 10-year yield at around 3.5% in the next 10 years.
Interest rates will remain permanently higher
Source: Bloomberg, Apollo Chief Economist
Source: Apollo Chief Economist

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