Strong exports data from China and employment data from Australia pushed Treasury yields higher overnight, but a weaker-than-expected read on March wholesale inflation (PPI) just released has front-end yields now 3-4 basis points lower on the day. The U.S. budget deficit reached $1.1 trillion in the first six months of the fiscal year, up 63% year-over-year. Entitlement spending accounted for the largest share of the deficit, with $843 billion spent on Medicare/Medicaid and $686 billion for Social Security. Interest on government debt rose 32% year-over-year to $384 billion, and education spending surged 76% to $124 billion due to costs associated with the Biden administration’s loan forgiveness program. This report will almost certainly be used in debt ceiling negotiations. Republicans are pushing for spending cuts in exchange for a vote to increase the debt ceiling, which the White House has so far considered a non-starter. The current estimate is for the Treasury Department to run out of cash in June without increasing the debt ceiling, but that estimate could change once April tax receipts are tallied.
Jason Haley
Chief Investment Officer
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