US Yields Underestimate Adverse Fiscal Dynamics
The US economy is facing a period of uncertainty due to the adverse fiscal dynamics that are likely to unfold in the coming years. Barclays Plc has warned that US yields are underestimating the potential impact of these dynamics, which could lead to a sharp rise in yields.
Rising US Yields
The US yield curve has been on a steady upward trend since the start of the year, with the 10-year Treasury yield rising from 0.93% in January to 1.76% in November. This rise has been driven by a combination of factors, including the Federal Reserve’s decision to keep interest rates low and the expectation of higher inflation due to increased government spending.
However, Barclays believes that the current level of yields is underestimating the potential impact of the adverse fiscal dynamics that are likely to unfold in the coming years. The bank believes that the US yield curve could rise to 2.5% by the end of 2023, and could even reach 3% by the end of 2024.
Adverse Fiscal Dynamics
The US economy is facing a period of uncertainty due to the adverse fiscal dynamics that are likely to unfold in the coming years. These dynamics include the potential for higher taxes, increased government spending, and a rise in the national debt.
The Biden administration has proposed a number of policies that could have a significant impact on the US economy. These include a $1.9 trillion stimulus package, an increase in the minimum wage, and a $2 trillion infrastructure plan.
The potential impact of these policies is difficult to predict, but Barclays believes that they could lead to higher taxes, increased government spending, and a rise in the national debt. This could lead to higher inflation and a sharp rise in yields.
Impact on Markets
The potential impact of the adverse fiscal dynamics on the US economy is likely to be felt in the markets. Barclays believes that the US yield curve could rise to 2.5% by the end of 2023, and could even reach 3% by the end of 2024.
This could have a significant impact on the markets, as higher yields could lead to a sell-off in stocks and bonds. It could also lead to a rise in the US dollar, as investors seek out safe-haven assets.
Conclusion
The US economy is facing a period of uncertainty due to the adverse fiscal dynamics that are likely to unfold in the coming years. Barclays has warned that US yields are underestimating the potential impact of these dynamics, which could lead to a sharp rise in yields. This could have a significant impact on the markets, as higher yields could lead to a sell-off in stocks and bonds, and a rise in the US dollar. It is important for investors to be aware of the potential impact of these dynamics on the markets, and to adjust their portfolios accordingly.