European Red Ink, Falling U.S. Treasury Rates

This morning's numbers from Eurostat on government finances showed persistent budget deficits in key euro-zone countries like Germany and France. The currency union as a whole has run a consolidated deficit for ten quarters in a row. German public finances have been in the red since Q2 2020, with France starting in Q1 2020 (interrupted briefly in Q1 2021). 

The consolidated Italian government budget has been in the red for as long as the euro zone. Spain, another of Europe's large economies, has only had one surplus quarter since Q4 2019. 

Persistently weak government finances in Europe reminisce investors of the bad situation during the Great Recession of 2009-2012. Since the European economy as a whole exhibits clear signs of a recession—precipitous drops in capital formation and rising unemployment among the strong signs—investors correctly see refuge in U.S. Treasury securities. 

Today (10/21), the euro fell to €1.029 vas. the dollar (xe.com), before rebounding. This is the second-weakest position for the euro this month. Meanwhile, most U.S. Treasury yields fell slightly from yesterday [last median auction yield included]:

• 1-month: 3.55 (3.58) [3.355]
• 2-month: 3.78 (3.83) [3.64]
• 3-month: 4.09 (4.09) [3.75]
• 4-month: 4.31 (4.33) [4.10]
• 6-month: 4.43 (4.48) [4.19]
• 1-year: 4.58 (4.66) [3.895]
• 2-year: 4.49 (4.62) [4.22]
• 3-year: 4.52 (4.66) [4.24]
• 5-year: 4.34 (4.45) [4.13]
• 7-year: 4.28 (4.36) [3.85]
• 10-year: 4.21 (4.24) [3.85]
• 20-year: 4.54 (4.47) [4.319]
• 30-year: 4.33 (4.24) [3.85]

Every maturity yields solidly above its latest auction-yield rates, with the 1-year paying 17% more in the secondary market than at the last Treasury auction. 

The rise in 20- and 30-year bond yields followed a long streak of rising yields, with the 30-year crossing the 4-percent line as recently as October 17.

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We do not give investment advice. 

This blog provides analytical information solely the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.