Pressure on the U.S. debt market will increase as medium- and long-term borrowing ramps up.
The U.S. Treasury ended March with a cash position of 775 billion, up from 837 billion on February 24 and just 178 billion on March 23.
Impact of Interest, Spending, and Deficits
How long will this money last? The second quarter is seasonally inactive in terms of accumulating budget deficits due to a surplus in April. For example, 2Q 2023 ended with an accumulated deficit of 291 billion, 2Q 2022 ended with a surplus of 158 billion, and 2Q 2021 ended with a deficit of 646 billion, but the stimulus programs were in effect then.
Given the acceleration of interest, military, and social spending (medicine and pensions), the deficit in 2Q 2024 could be 400 - 450 billion on the lower end. This means that even without borrowing, the accumulated cash will be sufficient for April - June 2024.
In November, the US presidential elections will be held, and the fight with the Republicans will be fierce, so the Democrats, under any pretext, will maintain a high level of spending, at least until the end of the year - accordingly, the budget deficit will certainly exceed 2 trillion in 12 months.
Consumption Patterns and Debt Accumulation
Current consumption in the US is sharply above the norm, leading to a low savings rate among institutional groups and a high propensity to accumulate debt. The growth rate of debt exceeds the growth rate of income and profits, meaning that the debt burden has an upward trajectory.
Treasuries, being the benchmark for all dollar bonds, will lead to an acceleration in rates for all other dollar bond issuers as well. Under the conditions of aggravating liquidity deficit with a high debt load, it may become a trigger for destructive processes in the debt market.
In the period from June to November, very loud events may occur in the debt market, i.e. the crisis will come from the financial sector, covering everything in its way.
The probability of this event is quite high, given the structure and volume of placements, as well as the balance of available liquidity.
Conclusion
In conclusion, the analysis highlights increasing pressure on the U.S. debt market due to rising borrowing needs and a challenging fiscal environment. Despite a temporary surplus in the second quarter, sustained high spending levels, coupled with escalating debt burdens and political uncertainties surrounding the upcoming elections, pose significant risks. The interconnectedness of Treasuries with other dollar bond issuers amplifies the potential for financial turbulence. Proactive measures are crucial to mitigate these challenges and ensure the stability of the debt market.