Over the past 12 months, about half of all debt in the U.S. bond market has been Treasurys – bonds and notes issued by the federal government.
That’s according to a June 8 research note from Torsten Sløk, the chief economist for money manager Apollo.
“This is not healthy,” Sløk wrote. “Half of credit issued in the economy should not be going to the government.”
As USA TODAY has previously reported, the growing U.S. budget deficit has caught the attention of investors in the bond market. The deficit is the consequence of revenue – taxes, mostly – not keeping up with spending. As it increases, the government issues more debt to plug the hole, and as supply rises, the government needs to pay more to attract demand from investors.
President Donald Trump’s proposed tax bill would exacerbate that dynamic, swelling the deficit by an estimated $2.4 trillion over the next decade, according to the nonpartisan Congressional Budget Office.
More: Treasury bond yields are surging as the Trump tax bill progresses. Here’s why it matters.
Since all kinds of credit products, such as mortgages, are linked to the important U.S. Treasury market, those higher borrowing costs ripple through the economy.
Sløk has written previously about the concerns over the power dynamic between the government and bond investors. Some analysts are concerned that investors may become what’s sometimes called “bond vigilantes” – demanding certain fiscal conditions as a condition of buying a government’s debt.
Overseas investors own nearly one-third of outstanding Treasury debt.
Sløk’s June 8 analysis is a reminder that the Treasury’s mounting debt has many ripple effects.
“The consequence is that investors need to allocate more and more dollars to finance the government rather than financing growth in the economy through loans to firms and consumers,” Sløk wrote.
Read next: The White House’s tax bill will consider SALT (again). What could that mean for you?
This article originally appeared on USA TODAY: Half of the bond market is US Treasurys. Why it matters.
