The Treasury market may need to rely on a different mix of buyers than has existed in the past with the private sector playing a bigger role, according to Singapore’s United Overseas Bank. The Congressional Budget Office projects federal debt held by the public will grow to 120.21% of GDP in 2036. UOB noted that the Iran war is estimated to cost around $25 billion as of April 29, exacerbating the issue, while the new 10% global tariffs proposed by the Trump administration might not be enough to make up the amount of tax reimbursements following the Supreme Court’s ruling of International Emergency Economic Powers Act tariffs as unconstitutional. “The higher fiscal stress and higher overall debt level are indeed a magnet pulling Government yields higher,” the report said. “Simply put, if governments need to issue more debt to fund more liabilities and higher energy bills, the yield and cost of such debt have no choice but to go higher.” The U.S. fiscal situation appears to be a “slow burning overhang in the background” for the economy, the investment bank said, and “this does mean that the private sector will need to digest a mounting Treasury supply at the same time when other traditional buyers like foreigners have less appetite.” The U.S. Treasury 10-year yield is down about 30 basis points from highs last month, though it’s up around 20 basis points from levels at the start of the year. Meanwhile, USD-denominated corporate issuance from the U.S. is also increasing, with corporate issuance by the end of May rising 43% year-on-year to $956 billion. This is “adding to the supply of debt at a time when investors are shying away from bonds due to inflation concerns,” UOB said.
