Technical factors like higher U.S. Treasury bill issuance due to a rising federal budget deficit are also adding to the factors pushing short-term yields higher. As a result, short-term Treasuries may provide positive real yields for the first time since the financial crisis, with income sufficient to offset inflation.
“Lost revenues from tax cuts, twinned with greater government spending, mean more borrowing to fund deficits,” according to BlackRock. “We project the U.S. deficit to hit 5.7% of gross domestic product (GDP) 2019, the highest since 1960, outside of the 2008 crisis aftermath. The deficit spike comes even as the jobless rate drops to multi-decade lows – an unprecedented disconnect.”
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