Earlier this year, congress passed a budget projected to expand spending by $300 billion over the two-year deal term. The Treasury, in July, raised its estimate of borrowing for the year to $1.33 trillion despite record tax collections in April.
As the market balances supply and demand, this increased fiscal stimulus and treasury supply should place upward pressure on rates. However, in examining the five years the Treasury issued over a trillion of net new debt (2008 – 2012), we observe that in all of these years, save 2009, interest rates actually declined. Will the new issuance prove positive for rates? Conventional wisdom may fail us again. To current markets, issuance is one among many characters in the fixed income narrative.
U.S. fixed income
Bond Avengers: QE Infinity War
If the fixed income market were a movie franchise, the narrative arc connecting long disparate points in time would be economic growth and inflation, but as in the Marvel universe, at any given point in time, a new topic or lead character can emerge as the lead topic of focus.
Video: The gradual rise of interest rates
We seek to examine some of the current featured players in fixed income markets and see how they tie to its longer narrative.