Supply-demand imbalances forming in Treasury markets
The threat of soaring government debt supply destabilizing financial markets has intensified, the world’s top central banking advisory body said on Tuesday, as it urged policymakers to act swiftly to prevent economic damage.
“Financial markets are beginning to realize they will have to absorb these growing volumes of government debt,” he said as the BIS published its latest quarterly report. U.S. President-elect Donald Trump’s proposed tax cuts are expected to swell the nation’s $36 trillion debt pile by almost $8 trillion, while the UK’s new Labour government in its October budget raised previous five-year borrowing estimates by about 142 billion pounds .
The yield on the 10-year U.S. Treasury, which influences price movements in sovereign, corporate and household debt worldwide, has risen by about 56 basis points since September, to around 4.22%. The depth and liquidity of the $28 trillion Treasury market could insulate it from a sudden sharp rise in debt yields for some time, Borio said.Elsewhere in its report, the BIS noted increasing uncertainty about where global interest rates would settle as major central banks embark on cuts but the global economy remains resilient, buoyed by strong U.S. growth.
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