Blackrock points out that the surge in U.S. government debt may weaken investors' interest in long-term Treasury bonds and the U.S. dollar, increasing the risk of de-dollarization. Blackrock expects that, even as the Federal Reserve cuts interest rates, U.S. Treasury yields will continue to rise, but the increase in government debt may reduce the correlation between the trend of U.S. long-term Treasury yields and U.S. monetary policy.
On Monday, Eastern Time, the world's largest asset management company, Blackrock, stated that the surge in U.S. government debt may weaken investors' interest in key U.S. assets such as long-term Treasury bonds and the U.S. dollar, making the case for overseas investment opportunities even more compelling.
This year, President Trump's tariff policies have triggered market volatility and raised questions about the status of the U.S. dollar as the world's reserve currency. Fixed-income executives at Blackrock noted that, while concerns about de-dollarization are somewhat overstated, rising government debt does indeed increase this risk.
“For some time, we have been highlighting the precarious state of U.S. government debt, and if left unchecked, we believe that debt is the greatest risk to the U.S.’s ‘special status’ in financial markets.” They wrote in their third-quarter fixed income outlook report.
Currently, the U.S. Congress is discussing a key tax and spending bill, known as the “Big and Beautiful Bill” by Trump, which is a crucial element of his economic agenda for this term. According to estimates by non-partisan analysis institutions, this bill will add an additional $5 trillion to the already over $36 trillion in federal government debt over the next decade.
Even with interest rate cuts, U.S. Treasury yields are expected to rise.
Blackrock stated that the increase in government debt may reduce the correlation between the trend of U.S. long-term Treasury yields and U.S. monetary policy, though Blackrock expects that even if the Federal Reserve cuts interest rates, U.S. Treasury yields will still rise.
Blackrock also mentioned that, as the supply of U.S. government Bonds increases, the demand from the Federal Reserve and foreign central banks for U.S. Treasuries may decrease.
This indicates that investors will need to diversify their investments beyond the U.S. Treasury market and increase their exposure to short-term U.S. Treasuries, which may benefit from interest rate cuts.
Investment managers at Blackrock stated: “Despite calls for the U.S. government to cut spending, the fiscal deficit continues to rise, with an increasing portion of expenditures now allocated to interest payments.”
They added: “As foreign investors withdraw, and the U.S. government issues over $500 billion in Bonds each week, the risk of rising government borrowing costs due to the private market's inability to absorb this debt is becoming increasingly apparent.”
Editor/Rocky