Significant Fluctuations in the U.S. Treasury Market
As of September 3, the U.S. Treasury market has experienced another wave of sell-offs. The yield on 10-year Treasury bonds reached 4.293%, marking the fourth consecutive day of increases, while the 30-year yield approached 5%, reported at 4.988%, setting a new high for the period. This trend highlights investors' concerns about the U.S. fiscal situation and potential future supply-demand imbalances.
Court Ruling Acts as a Short-Term Trigger
Recently, a U.S. appeals court ruled that most of the global tariff policies implemented by the Trump administration were illegal, with the market widely expecting this decision to trigger fiscal pressure. Since these tariffs could remain until mid-October, the U.S. government may have to increase its debt issuance to address potential tariff refunds and deficit expansion. Following the announcement, the bond market reacted swiftly, with yields rising in the short term.
Long-Term Fiscal Deficit as a Deep-Seated Concern
Beyond the short-term shocks, deeper concerns arise from the structural deterioration of U.S. finances. Data shows that the total federal debt of the United States amounts to $36.21 trillion, accounting for 123% of GDP, far exceeding international standards. As spending on social security, Medicare, and debt interest continues to rise, the fiscal year 2024 deficit amounts to $1.9 trillion. Debt interest alone is approaching $900 billion, nearly offsetting the effects of increased tax revenue.
Meanwhile, the "Big and Beautiful Tax and Spending Bill" signed by Trump extends and makes permanent the tax cut policies, which are expected to further widen the fiscal gap. Experts point out that the U.S. has shifted from "fiscal discipline" to "debt dependency," with the future debt ceiling becoming nominal and fiscal space severely constrained.
Supply-Demand Mismatch Exacerbates Market Pressure
In the short term, changes in the structure of U.S. Treasury supply have also magnified upward pressure on yields. Latest Treasury Department data indicates that the net issuance of U.S. Treasuries for the fourth quarter of this year is expected to be approximately $590 billion, with more than three-quarters being long-term bonds. However, on the demand side, neither foreign central banks nor domestic institutions have shown the same appetite for bonds as before. Particularly, the duration of money market funds has reached near historical averages, making it difficult to absorb a large long-term supply, creating a significant mismatch.
Fed Policy and Market Expectations Diverge
Amid increased political interference from the White House, the Federal Reserve's stance has softened. Some FOMC members have shifted toward a dovish stance, openly expressing openness to interest rate cuts. Although the central bank previously emphasized maintaining a 2% inflation target, the market has generally bet on a rate cut within the year. This expectation has weakened the investment appeal of long-term U.S. Treasuries, reducing foreign demand and further driving up yields.
Global Impact and Future Outlook
Analysts indicate that the continued rise in U.S. Treasury yields is not only a fiscal challenge for the United States but may also trigger a chain reaction in the global financial system. If U.S. Treasuries, as a global pricing benchmark, maintain high yields for an extended period, it will raise global financing costs and impact capital flows in emerging markets.
Looking ahead, the future trajectory of U.S. Treasuries will depend on two key variables: whether the Federal Reserve cuts interest rates as expected by the market, and whether the U.S. government can propose a credible fiscal consolidation plan. In the absence of clarity on both fronts, market volatility may intensify further.
Conclusion
The current surge in U.S. Treasury yields is a result of an increase in short-term supply combined with persistent long-term fiscal challenges. The court ruling has triggered market concerns, but the true root lies in the out-of-control debt levels and an increasing trend toward deficit monetization. Without substantial policy adjustments, the U.S. Treasury market may enter a more turbulent phase.
