A Flooded Main Street

The U.S. treasury borrowed another $1 trillion in this year’s third quarter, straining a bond market already reeling from a crash not seen in decades.

Already this year, the treasury has borrowed $1.76 trillion in public bond markets.

The U.S. government has indulged in decades of deficit spending, counting on the world’s eagerness to invest in American bonds as the safest place to store value. The world’s banks have bought about $25 trillion in U.S. bonds, with the U.S. Federal Reserve amassing a portfolio of $7.3 trillion since 2008.

However, the Fed is now stepping back from the bond market, letting its holdings mature without replacing them. Japan, the biggest foreign buyer of U.S. bonds, has cut its holdings this year to the lowest since 2019.

“Japanese investors looked for yield in the U.S. and European bond markets,” Capital Group portfolio manager Tim Ng told The Wall Street Journal. “Now Japanese government bonds look more attractive. It’s a meaningful shift.”

The absence of the usual buyers has helped send the bond market into a plunge under the weight of high interest rates and a wobbling world economy.

Because bond yields rise as bond prices fall, the return on the benchmark 10-year treasury bond climbed to 4.9 percent earlier this month. That means the treasury faces the prospect of having to offer still-higher rates of return to entice investors to buy the latest cascade of U.S. bonds.

“This year, the U.S. deficit is projected to be $1.5 trillion, or about 5.8 percent of GDP,” David Einhorn, co-founder of hedge fund Greenpoint Capital, told an investment conference earlier this month. “We’ve never seen a deficit like this at a time of full employment.

“Everyone agrees that it’s unsustainable but not everyone agrees when it becomes a problem,” he added.

Some think it already is a problem. The U.S. bond market is poised to mark its third consecutive year of losses, which is unprecedented, Ng pointed out in a WSJ interview.

After three years of a negative bond market, “you might be skittish about buying any more bonds,” he said.

TRENDPOST: It is nothing more than a made-up central bank money game. As Gregory Mannarino makes clear in his article ENDGAME: War, Expanding Wars, HYPER-DEBT in this issue of The Trends Journal, “All central banks collectively have but one product, ONLY ONE! And that is their ability to issue debt… DEBT IS THE ONE AND ONLY PRODUCT OF EVERY SINGLE CENTRAL BANK ON THE PLANET.”

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