Are US deficits heading for a tipping point?

US Rates Strategists at TD Securities express their concerns over ballooning US deficits and their impact on the Treasury market. Key quotes “While Treasury is likely to hold auction sizes steady starting in May, investors remain concerned about the long-term US deficit trajectory. We believe it would take a combination of stronger economic data and a refocusing of market attention on the deficit outlook to produce a repeat of the 2023-style bear steepening in Treasuries.

” “The reinstatement of the debt ceiling in early 2025 should ensure that the budget and debt ceiling are politically coupled once again. Next year's negotiation is likely to be one the most contentious showdowns since 2011, and we see a risk of yet another downgrade to the US credit rating.” “The ongoing rise in deficits and declining dealer balance sheet capacity have led some investors to conclude that the Fed would intervene in markets if liquidity conditions deteriorate sharply.

Source: News Formal (newsformal.com)

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