US Treasuries have rallied strongly in recent months as investors look towards interest cuts. Yields on the benchmark 10-year note have dropped around a percentage point since April with prices moving inversely higher.
But that strong rally has still not allayed longer-term worries among some investors about this cornerstone asset for financial markets — mainly questions about the rising debt burden of the US and whether geopolitical tensions will see some foreign investors scale back purchases of Treasuries.
Washington cannot simply run up budget deficits indefinitely and some investors have grown jittery ahead of US elections, worried that neither candidate for the presidency has a convincing plan to address the sustainability of the US federal debt, which reached 124 per cent of GDP in 2023 and is projected to grow to 129 per cent by 2033. By 2028, interest expenses will represent over 60 per cent of the US federal deficit. Therefore, a possible tipping point for US debt sustainability could occur when additional borrowing is required mainly to cover interest servicing costs.