The US Fiscal Situation and Markets

Apollo Chief Economist

There is a lot of discussion in markets about the implications of the US fiscal situation.

Three areas to watch for investors are 1) debt ceiling and shutdown risk, 2) Treasury auctions, and 3) US downgrade risk. The complication for markets is that the debt ceiling and shutdown come and go with months between, but Treasury auctions happen every week, and a notice from a rating agency about the US fiscal situation can come with no warning.

In other words, for investors, the fiscal situation is not like watching quarterly earnings but instead a topic constantly lingering in the background that can impact markets with little or no warning—if, for example, a Treasury auction tails or rating agencies issue a statement.

The fundamental question remains: Who is going to buy the growing supply of Treasuries, and at what price?

Looking at net foreign purchases of Treasuries shows that foreign official institutions, i.e., central banks and sovereign wealth funds, have been net sellers of Treasuries since 2015, see chart below.

Foreign private buyers, on the other hand, stepped up purchases when the Fed raised interest rates in 2022. But in 2023 with rates peaking, they have been slowing their purchases, see again the chart below.

The bottom line is that investors across all asset classes need to spend some time not only on who is buying Treasuries—including whether it is yield-sensitive or yield-insensitive buyers—but also on Treasury auction metrics and what the rating agencies are saying and doing.

Foreign private sector slowing their purchases of US Treasuries
Source: Treasury, Haver Analytics, Apollo Chief Economist

Download hi-res chart(s)

This presentation may not be distributed, transmitted or otherwise communicated to others in whole or in part without the express consent of Apollo Global Management, Inc. (together with its subsidiaries, “Apollo”).  

Apollo makes no representation or warranty, expressed or implied, with respect to the accuracy, reasonableness, or completeness of any of the statements made during this presentation, including, but not limited to, statements obtained from third parties. Opinions, estimates and projections constitute the current judgment of the speaker as of the date indicated. They do not necessarily reflect the views and opinions of Apollo and are subject to change at any time without notice. Apollo does not have any responsibility to update this presentation to account for such changes. There can be no assurance that any trends discussed during this presentation will continue.   

Statements made throughout this presentation are not intended to provide, and should not be relied upon for, accounting, legal or tax advice and do not constitute an investment recommendation or investment advice. Investors should make an independent investigation of the information discussed during this presentation, including consulting their tax, legal, accounting or other advisors about such information. Apollo does not act for you and is not responsible for providing you with the protections afforded to its clients. This presentation does not constitute an offer to sell, or the solicitation of an offer to buy, any security, product or service, including interest in any investment product or fund or account managed or advised by Apollo. 

Certain statements made throughout this presentation may be “forward-looking” in nature. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking information. As such, undue reliance should not be placed on such statements. Forward-looking statements may be identified by the use of terminology including, but not limited to, “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology.