The US government's measures to manage pressure in the treasury bond market may only postpone the problem amid a global increase in the issuance of debt instruments, CNBC reports, citing JPMorgan experts.
Recently, James Sullivan, co-head of the firm's global fundamental research division, stated that the US Treasury's strategy of buying back long-term bonds while simultaneously issuing short-term treasury bills only provides temporary relief.
Sullivan compared this approach to “paying a mortgage with a credit card,” noting that the discrepancy will become more apparent over time. According to him, the intervention does not address the underlying issue of the growing volume of public and corporate debt, for which buyers need to be found.
The situation is further complicated by traditional investors reducing their participation. China's investments in US treasury securities have fallen to the lowest level in 18 years, while foreign governments' holdings have dropped to a 14-year low.
At the same time, the total US government debt stands at about $40 trillion, while the public debt of developed countries amounts to $76 trillion.
Recently, the US Treasury announced plans to at least double the volume of debt buybacks.
Alongside government borrowing, corporate debt is also rapidly increasing. Only leading companies in the artificial intelligence sector have issued $200 billion in debt obligations this year, which is 80% higher than last year's figures.
JPMorgan emphasizes that the yield on bonds now exceeds the yield on stocks included in the S&P 500 index, significantly complicating investors' choices between different asset classes.
