Singapore’s United Overseas Bank said the government bond market may have to rely on a different set of buyers, with the private sector playing a larger role. The Congressional Budget Office projects that federal debt held by the public will increase to 120.21% of GDP in 2036. UOB noted that the cost of the Iran war was estimated at around $25 billion as of April 29, making matters worse, while the Trump administration’s proposed new 10% global tariffs may not be enough to offset tax rebates following the Supreme Court’s ruling against the International Emergency Economic Powers Act tariffs. Unconstitutional. “Rising fiscal stress and rising overall debt levels are certainly magnets for higher government yields,” the report said. “Simply put, when governments need to issue more bonds to fund more debt and higher energy prices, the yields and costs of those bonds have no choice but to rise,” the investment bank said. He said the country’s fiscal situation appears to be a “background slow burn” for the economy, “which means the private sector will need to digest the growing supply of government debt at the same time as the appetite of other traditional buyers, such as foreigners, diminishes.” The yield on the 10-year U.S. Treasury note is down about 30 basis points from last month’s high, but up about 20 basis points from where it was at the beginning of the year. Meanwhile, US dollar-denominated corporate bond issuance is also increasing, with the amount of corporate bond issuance by the end of May increasing 43% from the same period last year to $956 billion. UOB said this “further increases the supply of bonds as investors shy away from bonds due to inflation concerns.”
