Shrinking Deficit
After four years of budget deficits of more than $1 trillion as the government boosted spending to help the economy and bail out the banking system, the shortfall is now shrinking.
Higher tax revenue and lower spending mean the deficit will probably shrink to $378 billion, or 2.1 percent of GDP in 2015, from 3.4 percent next year, 4 percent in 2013 and 7 percent in 2012, according to the CBO.
“The U.S. fiscal problem is pretty much gone for quite some time,” Vincent Truglia, a consultant in New York who was a managing director of Moody’s sovereign risk unit for 11 years, said in an Aug. 1 telephone interview.
As the U.S. economic outlook has improved, rallies in riskier assets may have damped demand for Treasuries.
Investors in U.S. government securities have lost 2.6 percent on average this year, according to the Bloomberg U.S. Treasury Bond Index. Holdings by foreign investors rose 1.9 percent through May, slower than the 5.2 percent increase a year ago, Treasury Department data in July showed
Dollar Demand
While demand for fixed-income assets has diminished, appetite for the U.S. dollar has improved. Its share of global foreign-exchange reserves rose to 62 percent on March 31 from a low of 60 percent in June 2011, according to International Monetary Fund data.
Credit-default derivatives used to bet on creditworthiness and insure against default signal the U.S. is safer than its top-rated developed market counterparts.
Swaps tied to the U.S. are priced at about 22 basis points, the lowest since 2009 and less than half the 55 basis points when S&P downgraded the nation, according to CMA data compiled by Bloomberg. Swaps linked to Germany are 26 basis points, while those for Australia are 49.7 basis points.