Apr 23, 2020 - Economy & Business

"Astronomical" U.S. debt from coronavirus measures will reshape the Treasury market

The seal US Department of the Treasury
Photo: Olivier Douliery/AFP via Getty Images

Even before expected new stimulus measures are passed, the U.S. government's annual deficit will likely top $4 trillion this year, analysts at BMO Capital Markets write.

Why it matters: "These are astronomical numbers that will reshape the Treasury market for years, if not decades, to come."

By the numbers: BMO estimates the U.S. will need to borrow more than $4.3 trillion, with the bulk of debt being financed as Treasury bonds in the second and third quarters, totaling roughly $3.5 trillion — $1.9 trillion and $1.6 trillion, in each quarter, respectively.

  • The previous quarterly net issuance record was "a comparatively minimal $569.2 billion" in the fourth quarter of 2008.

Between the lines: The Fed is currently equipped to buy around $2.6 trillion through its quantitative easing program, leaving a $1.7 trillion mountain for the market to swallow, BMO analysts say.

What's next: The Bank of America Global Research expects Congress to pass another large package worth up to $1.5 trillion that "extends on provisions in the CARES Act and provides much needed aid to State and Local Governments."

  • Treasury Secretary Steven Mnuchin confirmed in a recent interview that the White House expects much more debt to come: “This is a war, and we need to win this war and we need to spend what it takes to win the war."
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