The world’s largest, most-important financial market is growing by leaps and bounds. On Wall Street, that is making people nervous.
Annual issuance of U.S. Treasurys has exploded, nearly doubling since the pandemic began. The government sold a record $23 trillion worth in 2023. And few think the spree is going to slow soon, given the widespread expectation that government spending will continue to rise regardless of who wins November’s elections.
Rapid growth in markets from tech stocks to mortgage bonds has ended badly in the past. Treasurys are considered the safest and easiest-to-trade securities on Wall Street, and many worry that any instability there could rapidly spread.
he market’s growth isn’t the only thing troubling investors: Some are also concerned about new rules that are changing the way the trading works. That could help alleviate strains but also create unforeseen consequences, such as the cash shortages in 2019 and 2020 that snarled trading and boosted interest rates.
“None of these regulations solves the mounting pile of Treasury debt,” said Steven Kelly, associate director of research at the Yale Program on Financial Stability
.
U.S. Treasury debt outstandingSource: Treasury DepartmentNote: Marketable debt only
'05'10'15'20200105101520$25trillionBondsNotesBillsOther
The mounting pile
When the government doesn’t take in enough from taxes to fund its spending, the Treasury Department issues bonds to fill the gap. The agency raised a net $2.4 trillion last year to finance the deficit, taking into account what it had to sell to repay holders of maturing debt
.
Average interest rate on Treasurys held bythe publicSource: Treasury Department
'05'10'15'2020010246%TotalBills
The Treasury market has grown more than 60% to $27 trillion since the end of 2019. It is roughly sixfold larger than before the 2008-09 financial crisis.
“Running a nearly $2 trillion deficit during a peacetime economic expansion—that’s a lot of bonds for the market to absorb,” said Stephen Miran, an adjunct fellow at the conservative Manhattan Institute and a former Treasury Department senior adviser who assisted with the Covid-19 response.
The Congressional Budget Office anticipates government spending that continues to climb in the coming years, with an aging population raising the cost of programs such as Social Security and Medicare. Rising interest costs could also boost issuance.
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