The U.S. Is Testing the Patience of Bondholders
It’s no longer impossible to think the Treasury Department might not be able to find buyers for all the debt it’s selling.
The pressure is on Treasury Secretary Steven Mnuchin to fund the government.
Photographer: Win McNamee/Getty Images
It’s now clear in hindsight that a global pandemic was one of those things that financial markets never truly considered a real threat. This raises the question of what other so-called black swans might be lurking out there? Here’s one that might happen sooner rather the later: a failed auction of government bonds by the U.S. Treasury Department.
Such a notion was unthinkable just a few months ago for the world’s richest economy and one that enjoys the exorbitant privilege of controlling the world’s primary reserve currency. Sure, the chances are still negligible that the government won’t find enough buyers for all the bonds it needs to sell to finance an estimated $3.7 trillion budget deficit. But the point is that the odds, however slim, are probably no longer zero, and if they are not zero, then markets need to start discounting such a catastrophic scenario.