The US Treasury Building in Washington, DC on August 15, 2023.
Nathan Howard | Bloomberg | Getty Images
As if the bond crash in 2024 wasn’t bad enough, fixed income bond investors face a number of challenges in the coming year, including one hidden concern about short-term maturing bonds.
Nearly $3 trillion of U.S. debt is expected to mature in 2025, much of which is short-term in nature and has been issued in large quantities by the Treasury Department over the past several years.
With the government expected to try to extend the duration of that debt when it comes time to pay it back, that could cause another headache if the market isn’t ready to absorb what is already expected to be a massive issuance of government bonds as the US finances nearly the Budget a $2 trillion deficit.
“If you assume that after 2025 we’re going to run deficits of more than a trillion dollars, then that will eventually, cumulatively, overwhelm the issuance of Treasury bills,” Tom Tzitzouris, head of fixed income at Strategas Research Partners he said Tuesday on CNBC “Squawk Box.”
Strategas estimates that there is now $2 trillion in “excess” T-bills in the $28.2 trillion Treasury market.
“It’s going to have to be gradually picked up and pushed out on the five- to 10-year portion of the majority curve, and that’s probably a bigger concern for the market now than the deficit next year,” Tzitzouris said.
Otherwise, the Ministry of Finance likes to keep the issuance of invoices at slightly more than 20% of the total debt. But that share has grown in recent years midstream battles over the debt ceiling and the budget and the need for the Treasury Department to raise cash immediately to keep the government running.
In 2024 Box office show totaled $26.7 trillion through November, a 28.5% increase from 2023, according to the Securities and Financial Markets Industry Association.
secretary of the treasury Janet Yellen faced criticism earlier this year from congressional Republicans and economist Nouriel Roubini, who charged that the Department was issuing so many bills in an effort to keep short-term financing costs low and stimulate the economy during an election year. Scott Bessent, President Donald Trump’s pick for Treasury Secretary, was also among the critics.
However, yields have risen since late September, just after the Federal Reserve took the unusual step lowering its benchmark borrowing rate by half a percentage point.
With yields and prices moving in opposite directions, this has made this a miserable year for the government bond market. The iShares 20+ Year Treasury Bond ETF (TLT) lost more than 11% in 2024, compared to an increase of 23% for S&P 500.
With traders now pricing in a shallower rate cut path and investors left to deal with the influx of issuance, this could be another challenging year for fixed income.
“The deficit should actually decrease significantly next year compared to 2024,” Tzitzouris said. “So the grabbing and throwing of those bills is the bigger concern at this point.”
