US Treasury yields climbed towards the end of last week, lifted by a soft 30-year auction on Thursday. There has been a major repricing since the strong payrolls report on February 3rd. The 30-year Treasury yield rose by 13 basis points to 3.83% in just two days (Thursday and Friday) last week.
The poor, long-term outlook for the government finances could begin to weigh on demand for Treasuries. Public debt as a share of GDP really starts to balloon between 2032 and 2052, from 110% of GDP to 185% of GDP (CBO projections). This may be one of the reasons why the 10-year auction was so much better than the 30-year.
The 30-year inflation indexed Treasury currently yields 1.53%, compared to 1.41% for the 10-year, and 1.46% for a 2-year.
The federal budget deficit is widening again, despite the lowest unemployment rate since May 1969, hitting $1.577tr in the year to January. In the first four months of the fiscal year, net debt interest increased by $58bn (41% y/y) to $198bn (compared to the same period last fiscal year). There was also a $76bn (9% y/y) increase in outlays for the largest mandatory spending programs (adjusted for timing shifts). Leaders of both parties are unwilling to touch social security and Medicare.
The BLS has revised its seasonal adjustment factors. Core services inflation, on the CPI measure at least, did not slow by as much as previously thought at the end of last year. This could be important in the context of the Atlanta Fed wage tracker, which is still running at 6.1% y/y (3-months to January) and the other strong labour market data.
