US Treasury interest rates above 5% reveal the weight of the US$ 2 trillion deficit

Yields on United States Treasury bonds above 5% are already making credit more expensive for families and the federal government itself, according to CNBC. The effect makes visible the size of the challenge of financing a deficit of around US$2 trillion, and the bill begins to appear outside of Washington.

CNBC estimates that long interest rates at this level give Americans a taste of what a debt crisis would be like. A real emergency, according to the analysis, would cause much greater damage and is not embedded in the current scenario. The first sign appears in the housing market: the 30-year fixed mortgage hovers around 7.5%, and pending home sales fell 4% in September, the biggest monthly drop in three years, according to Redfin.

Mortgages track the yield on the 10-year Treasury, which has risen 114 basis points since the end of February, as of midday Friday, when the stock was trading at 5.1%. Among the factors cited by CNBC is the war with Iran, which began on February 28, which precipitated the rise in long interest rates. Oil and diesel rose sharply, and bond traders began asking for more to carry the debt.

The backdrop is the increasing issuance of federal debt, which puts pressure on interest rates and begins to weigh on parts of the economy. CNBC notes that the midterm elections on November 3 are expected to cement a divided government for two years. As the two parties are unlikely to reach a fiscal agreement after the vote, any correction would be years away, and it is unclear what would take the country off its current trajectory.

For those who defend fiscal responsibility, the message of the analysis is straightforward: without an agreement on the accounts, the cost of money tends to continue to put pressure on the debt itself, instead of alleviating it.

What changes for the investor

For those who invest in the stock market, Nasdaq or interest, the scenario is that the cost of money may remain high for longer. Higher long interest rates reduce the present value of assets whose earnings are far away, which often weighs on growth companies. The same increase makes financing more expensive and puts pressure on sectors linked to real estate credit, as suggested by the drop in sales. Rising oil adds another variable, as it affects costs and inflation. As CNBC does not indicate a deadline for a fiscal solution, uncertainty about the path of interest rates is the main factor to monitor in the coming months. This reading is not a recommendation to buy or sell and does not predict prices.

Automatically translated from Portuguese.