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I happened upon the latest Treasury bond marketing plan prepared by the large investment banks that buy the vast majority of the t-bills and t-bonds in Treasury auctions. It's a fairly comprehensive preview of the US government funding crisis ahead, in an understated way...
And of course, when your deficit / GDP ratio goes over 15%, it's a great idea to fund the new debt almost exclusively with T-bills, because there could never be a challenge in rolling over trillions of $'s in T-bills every ~90 days...
http://www.treas.gov/press/releases/tg10.htm
The Q2 update next month should be a fun read.
There is near consensus that Treasury's funding needs during the next two years will be the largest in the post-war era in dollar terms, and likely also as a percent of GDP. To date, stepped up issuance has been digested well, owing in part to the rock bottom level of the risk free overnight rate, deflationary concerns, and outsized demand among global investors for safe and liquid financial instruments amid the contraction in global economic activity.
But the ramp up in debt issuance remains in its early stages. As the US government and also foreign governments continue their efforts to stabilize their respective economies, the supply of government and quasi-government paper will grow rapidly. The sheer magnitude of paper set to be issued raises the possibility that investors at some point will demand a concession of some sort, lifting yields in parts of the term structure beyond those justified by macro fundamentals. As a country with a current account deficit and a majority of Treasury debt held abroad, the US is more at risk of such a development than a country such as Japan where the government bond market is primarily domestically held.
But the ramp up in debt issuance remains in its early stages. As the US government and also foreign governments continue their efforts to stabilize their respective economies, the supply of government and quasi-government paper will grow rapidly. The sheer magnitude of paper set to be issued raises the possibility that investors at some point will demand a concession of some sort, lifting yields in parts of the term structure beyond those justified by macro fundamentals. As a country with a current account deficit and a majority of Treasury debt held abroad, the US is more at risk of such a development than a country such as Japan where the government bond market is primarily domestically held.
A number of Committee members noted that despite the tremendous growth in proposed coupon issuance, the average maturity of Treasury debt will likely fall further and that additional changes will need to be discussed by market participants in coming months. The average maturity of the debt has already fallen from a range of 60 to 70 months which existed from the mid 1980's until 2002 to a level of 48 months more recently.
The Q2 update next month should be a fun read.