US Treasury Markets Show Resilience

The US Treasury markets have demonstrated remarkable stability and liquidity in the past quarter, with auctions receiving what TBAC Chair Deirdre K. Dunn described as "robust" demand. This stability comes despite the volatility experienced in April, now cushioned by significant equity gains and manageable interest rates.

Deficit Concerns Loom Large

However, the TBAC report raises alarms over the future supply-demand balance for US debt, projecting deficits to exceed $2 trillion by fiscal year 2027. The enactment of the One Big Beautiful Bill Act (OBBBA), which increased the debt ceiling by $5 trillion, had minimal impact on yields, suggesting the market had already assimilated its fiscal implications.

Potential Solutions and Challenges

New revenue streams from tariffs and heightened demand spurred by stablecoin legislation may offer some relief. Yet, officials warn that these gains could be negated by changes in investor behavior. The Treasury's buyback program has been well-received, sparking discussions within the Committee about its potential expansion.