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US loss of AAA badge a reminder of 'regime shift' for government debt
(www.reuters.com)
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this post was submitted on 14 Aug 2023
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Finance
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Aug 14 (Reuters) - Financial markets barely flinched when Fitch stripped the United States of its top credit rating, but it served as a reminder of longer-term structural risks investors in government bonds are yet to grasp.Such risks are making some investors, including hedge fund manager Bill Ackman, bet on rising longer-term borrowing costs.
Without cuts to age-related spending, median net government debt will rise to 101% of gross domestic product in advanced and 156% in emerging economies by 2060, S&P Global Ratings said in a study this year.
But that reflects high domestic ownership of government debt and ultra loose monetary policy - a hard act to follow with higher inflation.
For example, the New York Fed estimates longer-term U.S. Treasuries still yield less than rolling over short-term debt - a legacy of central bank government bond buying.
"As the supply of long-dated Treasuries rises, investors may demand higher term premia to compensate for the added risk of holding bonds with longer maturities," Fichan said.