TS Lombard says both the US and UK could ease long-end supply pressure by
shortening debt maturities, but their fiscal backdrops differ. In the UK,
average government debt maturity is about 14 years, fiscal policy leans toward
consolidation and rates are expected to fall, so refinancing risk from shorter
maturities is relatively contained. In the US, average debt maturity is already
short, fiscal policy remains expansionary and large financing needs lie ahead;
TS Lombard also expects the Fed may need to hike more than current market
pricing over the next 12 months. Shifting issuance toward the short end would
temporarily relieve long-term supply pressure but would accelerate the exposure
of government interest costs to higher policy rates, increasing fiscal
sensitivity to short-term yields. As refinancing volumes rise, policymakers’
room to both suppress long-term yields and control interest expenses will
narrow.
