BofA: The 10Y Treasury Is No Longer A “Safe Asset”, Citing Spending and Fed Policy

By: Tho Bishop

As ZeroHedges notes, a recent report from Bank of America’s Barnaby Martin indicates that the banking industry seems to be waking up to the very real risk posed by the Federal government’s continued fiscal recklessness.

Martin notes that recently:

Treasury performance has been akin to a risky asset. Our US rates team have highlighted numerous reasons for structural upward pressure on Treasury yields, including the Fed’s balance sheet shrinkage, higher US Libor rates and importantly…the jump in the US budget deficit.

In particular, Martin notes that the US projected deficits look even worse compared to other developed nations:

As the IMF highlight in their latest Fiscal Monitor, the US is the only Advanced Economy where debt-to-GDP is set to increase over the next 5yrs. [The chart below] shows the spectrum of debt-to-GDP changes, per country. In the US, the debt-to-GDP ratio is forecast to rise from 108% (end ’18) to 116.9% (end ’23). Contrast this to Germany, for instance, where the IMF see debt-to-GDP declining by over 17% during this period.


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