The US will be forced to fund a massive increase in its budget deficit with short-term debt, analysts have said, with consequences for money markets and the battle against inflation. The Congressional Budget Office, the independent fiscal watchdog, this week said aid packages for Ukraine and Israel would help push up the US deficit this fiscal year to $1.9tn — compared with its February prediction of $1.5tn.
“It is likely that the share of Treasury bills as a share of total debt increases, which opens up the question of who is going to buy them,” said Torsten Slok, chief economist at Apollo. “This absolutely could strain funding markets.” The size of the Treasury market has quintupled since the financial crisis, in an indication of how much the US has turned to debt financing over the past 15 years.