Mo’ money

The U.S. treasury has announced its financing needs for the 3rd quarter. From an initial estimate of $554Bn, Mr Bessent has rolled over the needs from 2Q to this one and now needs to borrow $1Tn. That’s new debt he needs to issue to maintain the Treasury cash balance to run the government, bit it doesn’t include the rollover needs from existing debt, which are basically $9Tn. If they issue $1Tn in 10 and 30 year bonds, it will surely push yields well above 5%. The alternative, is to issue short term treasury bills, hoping that Powell lowers interest rates to alleviate the interest payments on the vast amount of short term debt until, that’s what they’re hoping, the curve softens a little bit and gives them the opportunity to extend durations and issue long term debt to lock in rates. If we average the debt needs for the year, the U.S. will need $700bn per quarter which represents almost $3Tn, and will take the U.S. national debt to $40 Tn or 140% over GDP. Imagine the gap the AI investment needs to cover to take that figure down below 100%, probably in combination with some inflation to allow the debt to deflate. More dollar weakness ahead.

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