The 5-year Treasury yield is 4.62% and the 10-year Treasury yield is 4.56%. Yellen has flooded the market with new Treasury issues in order to replenish the TGA that she drew down from $1.7 Trillion in January 2021 to only $44 billion by June 2023. These new Treasury issues push yields higher. Once this forthcoming budget deal gets done in October/November, Treasury will issue more new Treasury bills, notes and bonds to fund the budget. This will push Treasury yields higher and Treasury debt meaningfully higher.
- The upcoming fiscal budget face off will resolve itself over the next couple of months despite all of the media click bait headlines and talking points. Both the Dems and GOP want to spend, and this forthcoming fiscal spending bill will include massive amounts of spending – much of it pork and Government subsidies.
- Congress set the debt ceiling off to the side earlier this year, therefore it will have lost any remaining vestiges of fiscal discipline. My guess is that fiscal 2024 will see a $2-3 Trillion fiscal deficit on top of this year’s $1.6-1.7 Trillion fiscal deficit.
- The current public debt is $33.1 Trillion, it will likely be around $34.7 Trillion by calendar year-end and between $37-38 Trillion by calendar year-end 2024.
In summary, Treasury Secretary Yellen will issue Treasuries to fund the spending party, pushing Treasury debt and Treasury yields higher. Fed Chair Powell will buy much of what Yellen sells (the rest of the world likely will not), growing the Fed’s balance sheet in the process. We have learned nothing as a country.