NEW YORK, May 24 - Investors are bracing for a flood of U.S. government debt issuance that over time could dwarf an expected rally in bonds, as they see no end in sight for large fiscal deficits ahead of this year's presidential election.
"If we take a step back away from the Fed and away from the next six months where we could still get substantial rate cuts, supply numbers are not healthy," said Ella Hoxha, head of fixed income at Newton Investment Management, who favors short-term maturities in Treasuries. Federal debt held by the public could grow by $21 trillion to $48 trillion by 2034, according to the Congressional Budget Office, opens new tab. Meanwhile, traditional sources of demand for U.S. government bonds are lagging. Foreign ownership is not keeping up with the growing size of the market and the Fed keeps shrinking its bond holdings.
Anna Kelly, spokesperson for the Republican National Committee, said Trump's"pro-growth, anti-inflation economic policies will ... bring down interest rates, shrink deficits, and lower long-term debt levels."A sudden drop in demand for U.S. government bonds is unlikely given the dollar's leading reserve currency status and the size and depth of the Treasuries market.
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