IMF warning: surge in US bond issuance weakens safety premium, pushing up global borrowing costs

The International Monetary Fund warned on Wednesday that the continuous increase in the issuance of US Treasury bonds is weakening its traditional safe-haven status, pushing up global borrowing costs. Over the past three years, the US budget deficit has averaged 6% of GDP, reaching historically rare levels, and is expected to remain at this level for the next decade. The IMF also stated that the spread between AAA-rated corporate bonds and government bonds has narrowed, indicating a decrease in the attractiveness of US Treasury bonds. This spread has decreased from around 55 basis points in early 2019 to approximately 35 basis points. In addition, the IMF warned that the US Department of the Treasury is overly reliant on short-term debt issuance. US Treasury Secretary Janet Yellen previously stated that expanding long-term issuance is not meaningful because long-term bond yields are higher than short-term notes.