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Reuters
13 hours ago
- Business
- Reuters
US bond market braces for surge in Treasury supply in second half
BOSTON, June 24 (Reuters) - The bond market is bracing for up to $1 trillion of additional U.S. Treasuries supply in the second half of the year once lawmakers address the looming debt ceiling problem, possibly permanently, top rates strategists said on Tuesday. Any new issuance will likely be focused on shorter-dated debt including bills. With the flood of Treasuries, market participants are left to wonder: who is going to buy them all? Treasury issuance is meant to address the U.S. government's huge fiscal deficit. President Donald Trump's sweeping tax-cut and spending bill would lead to a larger-than-expected $2.8 trillion increase in the federal deficit over the decade, despite a boost to U.S. economic output, the nonpartisan Congressional Budget Office projected. The U.S. Senate could vote on Friday on Republicans' tax and spending measure, said Treasury Secretary Scott Bessent on Tuesday, and he was confident the House would then pass that version. "We are just about to go through a level shift," said Mark Cabana, head of U.S. rates strategy at BoFA Securities, during a panel discussion on Tuesday at the Money Fund Symposium in Boston. "You're going to see this big issuance clip and it's coming within the next few months. You can debate exactly when they raise the debt limit, but the X-date is coming soon." Bessent had said that the so-called X-date when the government would exhaust remaining borrowing capacity under the federal debt ceiling would come sometime during the mid-to-late summer. When the debt ceiling is reached the Treasury is unable to increase borrowings, but if it is lifted or eliminated, the government can then issue more debt. Cabana's forecast is for new supply of Treasuries to hit $1 trillion by the end of the year. Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, also expects an increase of nearly $1 trillion in issuance this year, with about $700 billion supply in August and September. A surge in Treasury supply could increase repurchase, or repo rates, which refer to the cost of borrowing short-term cash using Treasuries or other debt securities as collateral. Higher Treasury supply typically saturates the market with additional collateral, which can initially lower repo rates due to excess supply. However, if supply exceeds demand substantially, it may lead to higher repo rates as lenders demand more compensation for holding larger volumes of securities. Goldberg thinks this year's supply will be concentrated on the front end of the Treasury curve - the two-year to the seven-year sector. "Our expectation is that the Treasury keeps issuance focused on the very front end of the curve in terms of coupons. We're not expecting auction size increases until the middle to end of next year, so August or November of 2026, and we don't expect any increases in the long end either," Goldberg said. "In fact, I wouldn't be surprised if there are some decreases in size on the long end, but twos, threes, fives, sevens, that's where the Treasury is going to really look to finance themselves, not 10s, not 20s, not 30s. So it's really that and bills." Adding to Goldberg's point, Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets. noted that the U.S. Treasury has become so market-sensitive that it is willing to pull back on longer-term issuance if it leads to volatility in yields. It is not just the Treasury Department that has been more cognizant of the market's reaction, he said, but also Japan's Ministry of Finance and the UK. Money market funds, whose assets hit a record $7.4 trillion in June, are well positioned to absorb part of that Treasury supply, the strategists said. However, there has been a modest shift recently away from Treasuries by these money funds and into private repo transactions because of the latter's higher rates.
Los Angeles Times
04-02-2025
- Business
- Los Angeles Times
Calm returns to Wall Street as tech stocks lead U.S. indexes higher
NEW YORK — Calm returned to Wall Street on Tuesday, and tech stocks led U.S. indexes higher after a strong profit report from Palantir Technologies, a darling benefiting from the artificial intelligence boom. The Standard & Poor's 500 rose 0.7% a day after swinging sharply on worries that President Trump's tariffs could spark a trade war that would hurt economies around the world, including the United States. The Dow Jones industrial average added 0.3% and the Nasdaq composite climbed 1.4%. Trump on Monday agreed to delay his taxes on U.S. imports of Canadian and Mexican products for a month, with the announcement on Canada coming after trading closed for the day. That bolstered Wall Street's long-standing hopes that Trump's tough talk on tariffs may be just that, talk. The hope is that Trump sees tariffs as a stick he can use in negotiations with trading partners rather than as a long-term policy. That hope is built in part on traders' belief that Trump probably would be turned off by the damage Wall Street would take if a worst-case, long-term trade war were to occur. Trump has pointed in the past to the stock market as a real-time measure of his performance. But a trade war is still possible, and some analysts say more swings may be coming because Trump's threats should be taken both seriously and literally. 'Investors have suggested the equity market is the US administration's scorecard and any policy changes that hurt risk assets will be quickly dialed back,' Bank of America strategists led by Mark Cabana wrote in a BofA Global Research report. 'We advise caution.' They say a big takeaway from all the tariff tumult is that the Trump administration is transactional, and 'nothing is settled until it is final.' Trump is pressing ahead with a 10% tax on U.S. companies importing things from China. And China retaliated on Tuesday by announcing its own tariffs on some U.S. products and an antitrust investigation into Google. But the 15% tariff on U.S. coal and liquefied natural gas products, as well as a 10% tariff on crude oil, agricultural machinery and large-engine cars imported from the United States won't take effect until Monday. That leaves time for negotiations between Trump and Chinese President Xi Jinping. Some on Wall Street also see tariffs on China as separate from Trump's moves against other trading partners. Trump may be more likely to keep tariffs on China for the longer term, as he did in his first term, because of a desire to separate the United States more from its geopolitical rival. Outside of China, the result of all this tumult for Canada, Mexico, the European Union and other U.S. allies is more likely to be concessions and not tariffs, according to Thierry Wizman, a strategist at Macquarie. The stock price of Google's parent company, Alphabet, rose 2.5% even with China's antitrust investigation. The company released its latest earnings report after trading ended for the day. Elsewhere on Wall Street, stocks that had swung sharply a day before when worries were high about tariffs on Mexico and Canada were calmer. Automakers had dropped because so much of their production occurs in Mexico, for example. But General Motors rose 1.4%, and Ford Motor climbed 2.7%. More attention was on earnings reports for U.S. companies, which probably would have been in the market's spotlight if not for worries about a potential trade war. Palantir Technologies jumped 24% and was one of the strongest forces lifting the S&P 500 after reporting a better profit for the latest quarter than analysts expected. The Denver company also issued forecasts for upcoming revenue that were ahead of analysts' projections, as Chief Executive Alexander Karp said his company is at the 'center of the AI revolution.' Pharmaceutical giant Merck tumbled 9.1% despite beating sales and profit forecasts for the latest quarter. It gave a forecast for upcoming revenue that fell short of analysts' expectations, due partly to a pause in shipments of one of its top-selling products to China. All told, the S&P 500 rose 43.31 points to 6,037.88. The Dow Jones industrial average added 134.13 points to close at 44,556.04, and the Nasdaq composite jumped 262.06 points to 19,654.02. In the bond market, Treasury yields eased after a report indicated the U.S. job market may be adding less upward pressure on inflation. U.S. employers advertised fewer job openings at the end of December than economists expected, suggesting a slowing but still healthy job market. The yield on the 10-year Treasury fell to 4.51% from 4.56% late Monday. The two-year yield, which moves more closely with expectations for what the Federal Reserve will do with short-term interest rates, eased to 4.21% from 4.25%. In stock markets abroad, London's FTSE 100 slipped 0.1%, but other big European indexes rose modestly. In Asia, Hong Kong's Hang Seng jumped 2.8%, and South Korea's Kospi rose 1.1%. Choe writes for the Associated Press. AP writers Matt Ott and Zen Soo contributed to this report.
