According to Singapore's United Overseas Bank (UOB), the U.S. Treasury market is facing a shift in its buyer composition due to escalating federal debt, projected to reach 120.21% of GDP by 2036, as reported by the Congressional Budget Office. The ongoing costs associated with the Iran war, estimated at $25 billion, alongside proposed 10% global tariffs, are contributing to fiscal pressures.
UOB highlights that higher government debt levels will likely lead to increased yields, as the government must issue more debt to cover rising liabilities and energy costs.
This situation creates a 'slow burning overhang' for the economy, suggesting that the private sector will need to absorb a growing supply of Treasury securities, especially as traditional buyers like foreign investors show reduced interest. Currently, the U.S.
Treasury 10-year yield has decreased about 30 basis points from last month's highs but is still up around 20 basis points since the beginning of the year. Additionally, corporate bond issuance in the U.S. has surged by 43% year-on-year to $956 billion by the end of May, further increasing the overall debt supply at a time when inflation concerns are causing investors to shy away from bonds