Bloomberg: Several traders have asked how the dollar can remain so resilient amid such a shortfall and the exploding debt burden it implies. The answer lies in an analysis of cost of servicing the U.S. debt burden -- which has fallen significantly over the last two months as the decline on U.S. yields dominates the debt increase seen so far.
Those last two words are important -- the fiscal stimulus promised and the issuance schedule indicated by the Treasury will result in the debt pile sustaining a rapid growth rate. Meanwhile, yields are not only running out of room to fall, but there’s a risk they instead rocket higher at some point. In such an environment, we’d quickly enter a world where rising U.S. yields are a net negative for the dollar, rather than a pillar of support, as the cost of servicing the U.S. debt enters a self-feeding spiral. But such a world is several months away at least.
Those last two words are important -- the fiscal stimulus promised and the issuance schedule indicated by the Treasury will result in the debt pile sustaining a rapid growth rate. Meanwhile, yields are not only running out of room to fall, but there’s a risk they instead rocket higher at some point. In such an environment, we’d quickly enter a world where rising U.S. yields are a net negative for the dollar, rather than a pillar of support, as the cost of servicing the U.S. debt enters a self-feeding spiral. But such a world is several months away at least.