The complexities of the U.Sdebt market are reaching unprecedented levels, with projections indicating that nearly $30 trillion in U.STreasury bonds will reach maturity by 2025. This projection is alarming, especially considering that a significant portion of this debt consists of short-term securities, which the U.STreasury has aggressively issued over the past few years due to their high liquidity and attractiveness to investorsHowever, the massive expansion of short-term securities has inflated the total U.Sdebt to an astonishing $36 trillionThis surge in debt has exacerbated the federal budget deficit, leading to escalated interest payments that are set to hit new recordsMoreover, the yields on Treasury bonds across various maturities are likely to rise dramatically in 2025, particularly for longer-term bonds (those with maturities of 10 years or more), potentially breaking through the highest levels seen in recent decades due to a phenomenon known as "term premium."

As the second term of the current administration unfolds, the government faces the daunting challenge of bond repayments

The Treasury's bond issuance has surged more than $8 trillion over the past three fiscal years, leading to what can only be described as a "brutal expansion" of U.SdebtThe situation appears to foretell a precarious future for the bond market in 2024, potentially culminating in a panic as investors grapple with a looming crisis brought on by approaching payments of massive short-term securitiesAfter witnessing a steep decline in bond prices in the latter half of 2024, investors will confront a series of substantial hurdles, including a significant, market-threatening “time bomb": the substantial volume of short-term debt that will soon come due.

Market analysts on Wall Street have started to forecast that the U.Sgovernment will attempt to extend the maturities of its debt during refinancingIf the market is not adequately prepared to absorb this projected increase in Treasury issuance, it could create significant challenges for investors in U.S

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debt, potentially jeopardizing long-term global confidence in American securities.

With the federal budget deficit nearing $2 trillion, analysts predict that the bond market may drive the "term premium" to heights not seen in recent years in order to compensate yield investorsThis situation implies that the 10-year Treasury yield, often regarded as the "anchor for global asset pricing," could soar above 5%, far exceeding the peak reached in October 2023, which has already been identified as the highest since 2007.

The concept of term premium, which refers to the extra yield that investors demand to hold long-term securities due to the risks associated with them, is returning to the forefront of market discussionsAs 2025 approaches, new tariffs may become a common consensus in the Western world amid a growing divide that characterizes the “de-globalization” eraThe rapidly increasing interest payments on U.S

debt, compounded by domestic expenditure pressures, have heightened market fear regarding the sustainability of the U.Sgovernment's soaring debt and the long-term risks of inflationThe dreaded term premium appears to be resurging, with forecasts suggesting it could exceed the 5% mark observed in 2023.

Since September, statistical evidence has indicated that term premium has been on an upward trajectory, reflecting investor anxiety over future uncertainties such as fluctuating interest rates, inflation risks, and escalating budget deficitsFollowing a hawkish shift in the Federal Reserve's stance, the phrase "higher for longer" has reemerged, prompting market participants to anticipate a scenario in 2025 where interest rates may not decrease, even as the neutral rate expectation continues to climbA critical element underlying this shift is the potential increase in inflation during the “Era 2.0,” combined with the rapid growth of bond issuance and federal budget deficits

Additionally, key bond-holding nations like China and Japan may express reluctance to expand their Treasury holdings or could even begin to reduce their positions, intensifying fears among bond investors that the Treasury may struggle to repay higher interest obligations in the future.

According to Strategas Research Partners, Tom ZKizuris noted in a recent CNBC interview that if one considers the persistent trillion-dollar-plus federal deficits expected through 2025 and beyond, coupled with the market's anticipation of rising interest expenses on U.Sdebt, the accumulation of these negative expectations could culminate in a debt issuance scale that overwhelms the system.

Forecasts from Strategas suggest that out of the approximately $28.2 trillion of publicly traded U.Sdebt (with an additional $8 trillion held internally by federal trust funds and accounts), about $2 trillion is categorized as "excess" debt available in the public market

Such debts will inevitably need to be absorbed by the market, transitioning into the 5 to 10-year maturity segment of publicly traded securities, which presents a greater concern for investors than the projected U.Sbudget deficit for next year, Kizuris explained.

In typical circumstances, the U.STreasury aims to keep the issuance of short-term Treasuries within 20% of the total debt portfolioHowever, due to ongoing political disputes over the debt ceiling and budget, coupled with the immediate liquidity needs of the Treasury to maintain government operations, this proportion has risenBoth investment institutions and foreign governments have increasingly favored these highly liquid short-term bonds.

Statistics from the Securities Industry and Financial Markets Association indicate that the total amount of outstanding U.Sdebt available for public trading surged to around $28 trillion by November 2024, a significant increase of 28.5% compared to 2023.

Since late September, yields on U.S

Treasury securities across all maturities, including both short-term and long-term bonds, have soared amid the government's mounting deficits and escalating interest obligationsThis upward trend continued despite the Federal Reserve's unusual intervention to lower the benchmark lending rate by 0.5 percentage points, which failed to prevent the 10-year Treasury yield, often referred to as the "global anchor for asset pricing," from surging higher.

Bond yields move inversely to their trading prices, and 2024 appears to be a challenging year for the U.Sbond market as a wholeNotably, the iShares 20+ Year U.STreasury Bond ETF tumbled more than 11% in 2024, in stark contrast to the S&P 500 index, which rose approximately 23% in the same timeframe.

Given that traders anticipate a tighter outlook on interest rate cuts, with some even pricing in no rate cut by the Federal Reserve in 2025, investors in U.S

debt will have to navigate a world marked by an enormous volume of bond issuanceThe global fixed income market is poised to face yet another year of considerable challenges.

Kizuris highlights that the projected budget deficit for the U.Sgovernment may even decrease in 2025 compared to 2024. Therefore, what is more concerning at this juncture is how these soaring levels of bond issuance will be appropriately raised and allocated.

With debt interest piling upwards amid a backdrop of rising “de-globalization” pressures, stakeholders need to brace for a new wave of growth in the yield curve associated with the "global anchor for asset pricing."

Statistics revealed by the Treasury Department indicate that U.Sdebt reached a staggering $34 trillion at the beginning of January 2024 and tripled to $35 trillion by the end of July of the same yearThe rapid increase accelerated even further, reaching the astonishing sum of $36 trillion within just three months, marking the fastest growth on record for U.S

debtThe challenges presented by the Era 2.0 not only require new debt issuance to compensate for tax cuts and rising demands for defense and public welfare amid “de-globalization” but also necessitate repayments for heightened interest obligationsThese factors constitute the core reasoning behind investors significantly raising their expectations for the yield on 10-year Treasuries.

During the fiscal year of 2024, the government’s net interest expenses reached $882 billion, reflecting a record growth rate of 34%, thereby becoming the third largest budget item, following social security and healthcareFor the 2024 fiscal year, interest payments even surpassed defense expendituresAccording to projections from the Congressional Budget Office (CBO), the projected budget deficit in the fiscal year 2034 may balloon to $2.9 trillion, with cumulative deficits of $22 trillion anticipated between 2025 and 2034. Furthermore, the CBO estimates that net interest expenses in 2025 could reach a historical peak, coming close to $1 trillion and comprising 3.4% of GDP, surpassing the historical record of 3.2% set in 1991, with projections suggesting that by 2034, net interest expenses could reach nearly $1.7 trillion or 4.1% of GDP.

American asset management giant T