Debt Doesn't Diet on Debt | CIO Insights

A sharp pullback in treasury yields as the government buys back long-dated treasuries may support the illusion of a government finally beginning to prioritise fiscal responsibility - BUT (as there is always a “but”) replacing these with cheaper shorter-dated issuance isn’t exactly the antidote to elevated debt. While far from a default concern (reserve currency status helps), funding current growth through debt has a payback in terms of future growth, as the Japan experience amply demonstrates.‍

INVESTMENT IMPLICATION - The argument supporting alternative currencies (think Gold) as developed world debt continues to spiral remains the longer-term bedrock - shorter-term, lower treasury yields are the catalyst. GOLD, rather than longer-duration corporate bonds (spreads are too tight) is the preferred play!‍

• Congressional Budget Office (CBO) forecasts Debt/GDP to rise from current c123% by c10% points for each of the next 5 years (aggregate 20% points increase in 10 years)

• Interest Costs, (currently 3.3% of GDP) will rise to 4% in 5 years and 4.6% in 10 years, keeping aggregate budget deficits elevated in the 6% area. If this isn’t a debt trap, what is…‍

Is there a tipping point? Yes - when marginal borrowing can’t earn its cost - that is when growth tips over - watch the spread between borrowing costs (treasury yields) and nominal GDP growth rate.‍

Treasury Buying Back Long-Dated Treasury Bonds‍

US Public Debt - $40trn and Counting…