Concerns Over Rising U.S. Deficit Spending Loom in Shadow of Election
Market Responses and Treasury Yields
With less than two weeks to the November 5 election, investors are witnessing a notable increase in Treasury yields, reflecting a growing anxiety about U.S. deficit spending. The bond market is in a state of flux as Treasury yields have surged from their September lows, indicating that investor confidence is beginning to wane. The benchmark 10-year Treasury yield closed at 4.18%, while its 30-year counterpart reached 4.49%, marking their highest levels since late July.
As noted by experts, including Emily Roland and Matt Miskin from John Hancock Investment Management, these rising yields can be attributed not only to a still-healthy economy but also to escalating concerns regarding the trajectory of federal deficits. Recent data indicates that the national deficit has soared to over $1.8 trillion for fiscal year 2024, signifying the third-highest level on record. In addition, the bond market’s trend towards higher yields is indicative of investors requiring more compensation for holding longer-dated Treasuries.
Election Proposals and Fiscal Responsibility
Both presidential candidates, Vice President Kamala Harris and former President Donald Trump, have put forth policy proposals that may further exacerbate the national debt. A recent analysis from the nonpartisan Committee for a Responsible Federal Budget contends that their respective taxation and spending plans will significantly add to the deficit. The projected additional deficit spending over the next decade could reach between $3.1 trillion to $3.8 trillion, depending on the outcome of the election and the consequent policy implementations.
Jason Pride and Michael Reynolds from Glenmede highlight the worrying reality that neither candidate appears to prioritize fiscal responsibility in their agendas. Instead, we see a potential “free-for-all” in spending that overlooks the fundamental principles of sound money management.
The Implications of Debt Financing
The current trajectory of fiscal policy raises pertinent questions regarding future government financing. Economist Steven Ricchiuto at Mizuho elucidated that Treasury coupon issues might need to increase dramatically to accommodate mounting financing requirements. The government’s failure to exercise restraint in spending could strain the bond market, complicating the situation further.
Moreover, the outcomes of congressional races carry significant implications for the future of U.S. fiscal policy. If a single party retains control of both the White House and the House of Representatives, the deficit could continue to swell unchecked. The Senate’s composition, while important, may have a reduced impact since potential control would likely be tenuous.
Conclusion: Time for a Return to Fiscal Prudence
In summary, the merging storms of rising Treasury yields and escalating national deficits pose serious risks to the U.S. economy’s stability. The time has come for a serious reckoning regarding fiscal responsibility. Regardless of the election outcome, it is crucial for policymakers to understand that unchecked spending can only lead to detrimental consequences for the market and taxpayers alike.
Investors and constituents must urge candidates to embrace fiscal prudence and hold their feet to the fire with a demand for structural changes that address our unsustainable debt trajectory. The stakes have never been higher, and the American economy deserves no less than a commitment to fiscal integrity and responsibility.
