- Despite the recent plunge in US Treasury yields, fiscal problems remain, Apollo's chief economist warned.
- Trillion-dollar federal deficits will be around "as far as the eye can see," he wrote.
The Treasury market looks far calmer than it did a couple months ago, but the dire fiscal situation hasn't changed, warned Apollo Management chief economist Torsten Sløk.
Even as bond yields have retreated sharply since October, the size of US government debt has reached $33.17 trillion as of September this year and is expected to balloon even more.
"With long rates falling in recent weeks, Treasury supply has seemingly become less important as a driver of long rates. But the fiscal challenges have not disappeared," he wrote in a note issued Saturday.
"Looking into 2024, Treasury auction sizes will be, on average, 23% higher than in 2023," he added.
Here are five charts that show how severe the debt outlook is.
The amount by which spending surpassed revenues in 2023 notched $1.7 trillion, or 6% of GDP. The Office of Management and Budget expects the deficit to expand to over $2 trillion by 2033, at 5% of GDP.
That means the Treasury Department must issue more and more fresh debt, which has led some experts to warn of the risk that auctions could fail because of a lack of demand.
The Congressional Budget Office's estimates sees outstanding debt rocketing to nearly 200% of GDP by 2053.
Meanwhile, a third of all outstanding US government debt, or about $7.6 trillion, is set to mature in the next 12 months, a previous analysis from Apollo found.
Bank of America analysts have said that outstanding debt is set to surge by $5.2 billion every single day, or $218 million every hour, for the next 10 years.
It's not just debt itself that is mushrooming. As interest rates remain elevated, the cost of carrying that debt is snowballing too. Payments on debt have doubled from $1 billion a day pre-pandemic to $2 billion a day in 2023.
And the outlook for payments looks to worsen as well. OMB sees the average interest rate on US debt hitting 3.5% in a decade, up from around 2.97% as of October.
Ray Dalio recently warned that the US was reaching an "inflection point" as the government borrows more money to just pay for debt service while spending continues unabated, deepening the hole it's trying to climb out of.