The battered bond market starts 2025 facing some difficult issues about debt

The battered bond market starts 2025 facing some difficult issues about debt


The U.S. Treasury building in Washington, D.C., on Aug. 15, 2023.

Nathan Howard | Bloomberg | Getty Images

As if the bond rout in 2024 wasn’t bad enough, fixed income investors face multiple challenges in the year ahead, including one under-the-radar worry about short term notes coming due.

Nearly $3 trillion of U.S. debt is expected to hit maturity in 2025, much of it of a short-term nature that the Treasury Department has been issuing in large amounts over the past few years.

With the government expected to try to lengthen the duration of that debt when it is time to roll it over, it could provide another headache should the market not be prepared to absorb what already is expected to be massive Treasury issuance as the U.S. finances a nearly $2 trillion budget deficit.

“If you assume that we’re going to be running trillion-dollar-plus deficits beyond 2025 then eventually, cumulatively, that will overwhelm the T-bill issuance,” Tom Tzitzouris, head of fixed income at Strategas Research Partners said Tuesday on CNBC’s “Squawk Box.”

Strategas estimates that there is $2 trillion in “excess” Treasury bills in the $28.2 trillion Treasury market now.

“Those are going to have to gradually be scooped and tossed out to the five-to-10-year portion of the curve majority, and that is probably a bigger concern for the market right now than the deficit next year,” Tzitzouris said.

Normally, the Treasury Department likes to keep bill issuance to just over 20% of total debt. But that share has crept higher in recent years amid ongoing battles over the debt ceiling and budget and Treasury’s need to raise immediate cash to keep the government operating.

In 2024, Treasury issuance totaled $26.7 trillion through November, an increase of 28.5% from 2023, according to the Securities Industry and Financial Markets Association.

Treasury Secretary Janet Yellen faced criticism earlier this year from congressional Republicans and economist Nouriel Roubini, who charged that the department was issuing so many bills in an effort to keep near-term financing costs low and goose the economy during an election year. Scott Bessent, President-elect Donald Trump’s choice for Treasury secretary, also was among the critics.

However, yields have soared since late September, just after the Federal Reserve took the unusual step of lowering its benchmark borrowing rate by a half percentage point.

With yields and prices moving in opposite directions, it has made it a miserable year for the Treasury market. The iShares 20+ Year Treasury Bond ETF (TLT) lost more than 11% in 2024, compared with a 23% gain for the S&P 500.

With traders now pricing in a shallower path of rate cuts, and investors left to deal with an influx of issuance, it could be another challenging year for fixed income.

“The deficit next year should actually come down materially versus 2024,” Tzitzouris said. “So it’s scooping and tossing those bills that’s a bigger concern at this point in time.”

Don’t miss these insights from CNBC PRO



Source

South Korea prosecutors file request to detain ex-president Yoon
World

South Korea prosecutors file request to detain ex-president Yoon

Yoon Suk Yeol, South Korea’s president, arrives for a hearing at the Constitutional Court of Korea in Seoul, South Korea, on Tuesday, Jan. 21, 2025.  Bloomberg | Bloomberg | Getty Images South Korean special prosecutors on Sunday filed a request to detain former President Yoon Suk Yeol on charges related to insurrection from when he […]

Read More
China retaliates to EU ban with import restrictions on medical devices
World

China retaliates to EU ban with import restrictions on medical devices

A factory manufacturing medical devices. Reuters China’s finance ministry said on Sunday it was restricting government purchases of medical devices from the European Union that exceed 45 million yuan ($6.3 million) in value, in retaliation to Brussels’ own curbs last month. Tensions between Beijing and Brussels have been rising, with the European Union imposing tariffs […]

Read More
Trade deadlines and oil drama set the stage for a crunch week in global markets
World

Trade deadlines and oil drama set the stage for a crunch week in global markets

Flags of the European Union and the United States. Sean Gallup | Getty Images News | Getty Images CNBC’s assignment desk has a conundrum this week: how to approach July, 9. Why does this specific date matter? It’s the deadline for trade negotiations between the U.S. and European Union before the tariffs axe (maybe) falls […]

Read More