The U.S. has a mountain of debt. So why aren't stock and other markets worried?
The immense fiscal cost needed to limit the damage wrought by the COVID-19 pandemic isn’t frightening bond investors.
He noted the same report from the CBO estimated the U.S. federal government’s cost to service its debts would amount to 1.1% by 2025, which would represent the lowest level since World War II. One overlooked point, Drut said, was the Fed would transfer the income earned from its $6.35 billion holdings of agency mortgage-backed bonds and government paper to the U.S. Treasury Department. This would help to offset the hefty bills incurred by Washington.
Sheets noted the 10-year yield’s depressed levels were a sign that investors were not suffering much indigestion as they absorb the federal government’s ballooning debt issuance. “There’s no sign that we are having trouble clearing auctions at this point,” said Marvin Loh, senior global macro strategist, told MarketWatch.
Higher interest rates could complicate the Treasury Department’s task of funding large budget deficits as the market’s compliance would be necessary to roll over any coming maturities every year.And in the distant future when the Fed chooses to normalize monetary policy, interest rates would still remain low as natural long-term interest rate, or the neutral rate, is much lower than before as Americans get older and productivity growth slows.
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