Brief: The US Debt Ceiling, Strong Dollar, & Surging Sovereign Bond Yields

The Jan 1 expiration of the US debt ceiling suspension enacted under the Fiscal Responsibility Act of 2023 leaves the Treasury Department with just one to two weeks until the US reaches its new debt limit.

January 08, 2025 • Est. Reading Time: 3 minutes

Mobius Intel Brief:

Yields on longer-dated US Treasuries have surged since early December to multi-month highs as economic uncertainty, inflation expectations, and rapidly approaching US default risks weigh on demand for sovereign debt.

Key Intel

  • The January 1, 2025, expiration of the U.S. debt ceiling suspension—enacted under the Fiscal Responsibility Act of 2023—has eroded demand for U.S. debt. The Treasury Department anticipates the U.S. will reach its new debt limit between January 14 and January 23, after which it plans to implement “extraordinary measures” to prevent an immediate default on the country’s $36.1 trillion in outstanding federal debt.

  • Widening yield spreads between US and foreign bonds have added to the dollar’s risk premium from elevated economic uncertainty and foreign reserve banks preparation for Trump 2.0 tariffs against countries with lopsided trade balances against the US.

  • The dollar index rebounded above 109 today, holding at its highest since November 2022.

Looking Ahead

A strong dollar could weigh on early 2025 commodity demand, particularly in China, India, and other emerging growth centers.

Unlike the US, Europe, and Middle East, Chinese crude inventories are historically elevated. Healthy inventories and a strong dollar could dissuade China’s opportunistic crude purchases, prolonging the market’s demand-side concerns.

Meanwhile, President-elect Trump’s tariff threats could incentivize incremental demand for US energy exports as a solution to foreign governments’ trade surpluses against the US. The EU, Mexico, India, South Korea, and Japan increased their purchases of US energy cargoes under the first Trump administration’s tariff-led negotiations.

This commentary contains our views and opinions and is based on information from sources we believe are reliable. This commentary is for informational purposes, should not be considered investment advice, and is not intended as an offer or solicitation with respect to the purchase and sale of commodity interests or to serve as the basis for one to decide to execute derivatives or other transactions. This commentary is exclusively intended for Mobius clients and is not considered promotional material.