Worries Arise as Over $100 Billion in US Debt Awaits Issuance, 30-Year Treasury Yield Soars to 14-Month High

Due to the tense and uneasy government bond market this week preparing for $119 billion in new bond issuances, the yield on the U.S. 30-year Treasury bond has climbed to its highest level since the end of 2023. The 30-year U.S. Treasury bond yield briefly rose by 4 basis points to reach 4.85%, the highest level since November 2023. On Monday, the U.S. Treasury Department will issue $58 billion in three-year bonds, and will auction 10-year and 30-year bonds on Tuesday and Wednesday. The sale dates have been moved up by a day due to the state funeral of former President Jimmy Carter on Thursday. In recent weeks, concerns about potential inflation under the upcoming Trump administration have led the market to assess the pressure on U.S. debt. Traders are closely monitoring comments from President Trump himself and his representatives regarding their intentions to lower taxes and increase trade tariffs, both of which could potentially drive prices higher. Strategists at French Industrial Bank, including Adam Kurpiel, wrote in a report, "While we believe the emergence of bond vigilantes or buyer boycotts are unlikely, we expect demand for U.S. Treasuries to remain sensitive to economic conditions, geopolitics, and risk sentiment." They added that this could lead to increased volatility throughout the year. Since early December, this sensitivity has pushed the 10-year bond yield up by around 50 basis points to 4.62%. U.S. Treasury bonds have nearly erased their gains for the year, only rising by 0.6% in 2024. The impact of rising yields is now spreading to other asset classes. Morgan Stanley strategists stated that interest rates are the "most important variable to watch for the stock market in early 2025," and they recommend investors choose companies with stronger balance sheets or lower leverage that are less sensitive. In the foreign exchange market, high rates have boosted the dollar, which has just recorded its strongest annual gain in nearly a decade. Garfield Reynolds, a Bloomberg MLIV strategist, said, "Bond investors may face a lose-lose situation from Washington. A smooth passage of big spending plans would be damaging, but political chaos may reignite concerns about the debt ceiling." The incoming Trump administration has made it clear that their goal is to quickly implement many key legislative policies. House Speaker Mike Johnson stated last Sunday that a comprehensive bill will be ready for Trump to "definitely sign before May," possibly by the end of April. If inflation picks up again, it could slow down the pace of Fed rate cuts. The Fed has revised downward its expectations for loose policies in 2025, and the market has fully priced in expectations for only one rate cut this year. Comments from Fed officials, including San Francisco Fed President Daly, over the weekend have reinforced this view. Futures traders are predicting that policymakers may maintain interest rates unchanged until at least June. Furthermore, the looming battle over the U.S. debt ceiling is exacerbating concerns. The U.S. Treasury Department is preparing to use special accounting strategies to avoid default starting in mid-January. Given Trump's desire to raise or eliminate the debt ceiling, this could be the first stage of a prolonged fiscal policy struggle. Mohit Kumar, Chief Economist at Jefferies International, stated, "The hawkish stance from the Fed in December, along with concerns about the U.S. fiscal situation, is putting upward pressure on rates."