U.S.** spending continues to grow, raising concerns about the budget deficit.
PIMCO warned that investors could demand a higher premium for long-term Treasury yields.
The sell-off in the bond market could lead to a steepening of the yield curve.
The U.S. dollar's reserve currency status limits the upside of yields.
PIMCO, the U.S. bond giant, recently released a report saying that the U.S. debt trajectory is unsustainable and could lead to a rise in long-term Treasury yields.
The report noted that the growth of U.S. spending** shows no signs of slowing down, and the fiscal deficit is widening, raising investors' concerns about the sustainability of the U.S. fiscal sector. Investors may demand a higher premium for longer-dated Treasuries to compensate for future inflation risks and default risks.
Last year, bond investors' concerns about U.S. spending and budget deficits led to a sharp sell-off in the bond market, with U.S. Treasuries** falling to a 17-year low. PIMCO believes that if no action is taken to change the fiscal position, a similar sell-off storm could happen again.
PIMCO expects the U.S. Treasury yield curve to become steeper over time, with long-term Treasury yields significantly higher than short-term Treasury yields.
However, PIMCO also said that the dollar's status as the world's largest reserve currency will limit the best room for yields. Despite the problematic trajectory of long-term debt, a fiscal crisis in the United States is unlikely in the near term.
PIMCO warned that the unsustainable trajectory of U.S. ** debt could lead to a rise in long-term Treasury yields. Investors need to monitor changes in the U.S. fiscal situation and be prepared for higher yields.