Analysis\u002DBond vigilantes circle battered US Treasury market

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NEW YORK - Bond investors' rising concerns around U.S. government spending and its ballooning budget deficit are contributing to a steep sell-off that has pushed Treasury prices to 17-year lows.

Cutting the country's credit rating recently, ratings firm Fitch projected the U.S. deficit would rise to 6.3% of gross domestic product this year from 3.7% in 2022, due to higher debt service costs, new spending initiatives and weaker federal revenues. "There's a concern now that if government spending doesn't come down now, how large is it going to be if we do hit another recession and you could have very significant deficits and … significant amount of supply," said Gene Tannuzzo, global head of fixed income at Columbia Threadneedle.

A 156% rise in the federal deficit over the past year has resulted from falling government receipts due to lower capital gains and smaller salary bonuses in 2022 as well as sharply higher tax refunds, the Treasury Department has said. Government spending rose 10% over that time, driven by higher Social Security payments and rising debt expenses.

Still, not all investors believe vigilantes will be able to push the $25 trillion Treasury market around.

 

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