The ballooning U.S. federal deficit is “worrying investors big time,” including about the bond market’s ability to finance the shortfall at current interest rates, according to Yardeni Research.
With the U.S. federal deficit now “abnormally large,” inflation would need to continue moderating for the yield on the 10-year Treasury note to remain in its recent range, according to the note. “For now, we’re sticking with our back-to-the-old-normal bond yield forecast, based on our moderating inflation forecast, but we are increasingly concerned about the flood of Treasuries,” they said.
“They will undoubtedly do so,” they wrote. “The only question is whether interest rates are high enough already to attract these buyers or whether rates would have to go higher to do so.” The yield on the 10-year Treasury note BX:TMUBMUSD10Y was up about two basis points in midday trading Monday at around 4.29%, according to FactSet data.