By Davide Barbuscia
New York (Reuters) – A potential slowdown in the withdrawal of the balance sheet from the federal reserve and insurance of the Treasury Secretary Scott Bessent against imminent long -term debt increases could offer short -term relief to assaults on the bond market While tax concerns would linger.
The reports of the Fed of the rate fixing meeting from rate from January 28 to 29 published this week have shown that officials have weighed down a possible break or a slowdown in the reduction in the Fed balance sheet, known as tightening tightening quantitative (QT), because a binding government debt ceiling could complicate the central bank capacity to assess the liquidity of the market. Meanwhile, Bessent said in an interview with Bloomberg Television on Thursday that, for the moment, the expansion of the broadcast of public debt on a long time is not on the table.
Treasury yields, which evolve inversely at prices, decreased after the Fed minutes on Wednesday and the interview of Bessent injected more and more optimism, pushing yields down on Thursday.
However, its remarks have not disrupted the expectations of the market for the increase in public debt, as investors and analysts provide that the Treasury will eventually have to compensate for a drop in public income from the tax reductions proposed by President Donald Trump.
BRIJ KHURANA, director of the fixed income portfolio at Wellington Management, said that it was encouraging to have a Treasury Secretary “who is aware of financing costs”. Bessent said earlier this month that the Trump administration was to contain the treasury yields to 10 years of reference.
“At the same time, if the yields are materially lower, then they will probably make more tax reductions … If the yields go much lower, I think Bessent would try to push for longer obligations,” declared Khurana.
JPMorgan analysts said that in a note on Thursday, the concerns of the bond market concerning the supply of excessive debt could withdraw in the context in the coming months, given the objective of the administration on yields at long term. But they said they were still expecting major government borrowing needs in the next financial year, would increase in long -term debt sales.
Trump plans to renew and extend the tax discounts he signed during his first presidency in 2017, which is expected to expire at the end of this year. This could increase deficits by more than $ 4 billions over the next 10 years, said the Congressional Budget Office.
The reductions in federal spending fired by the Elon Musk Government Department (DOGE), as well as the potential revenues of Trump’s expected prices on imports, could help brake the growth of the deficit, although the extent of their impact is uncertain.
