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A record $8.9 trillion of government debt will mature over the next year, see the first chart below. The government budget deficit in 2024 will be $1.4 trillion according to the CBO, and the Fed has been running down its balance sheet by $60 billion per month.
The bottom line is that someone will need to buy more than $10 trillion in US government bonds in 2024. That is more than one-third of US government debt outstanding. And more than one-third of US GDP.
This may be a particular challenge when the biggest holders of US Treasuries, namely foreigners, continue to shrink their share, see the second chart.
More fundamentally, interest rate-sensitive balance sheets such as households, pension, and insurance have been the biggest buyers of Treasuries in 2023, and the question is whether they will continue to buy once the Fed starts cutting rates.
Our updated outlook for Treasury demand is available here.
Source: Treasury, BEA, Haver Analytics, Apollo Chief Economist 
Source: Treasury, Haver Analytics, Apollo Chief Economist 
See important disclaimers at the bottom of the page.
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In 2021, US government interest payments were around $350 billion, see chart below.
Because of the increase in interest rates and debt levels, annualized debt servicing costs are now above $700 billion.
Source: US Treasury, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Eighty-nine percent of US household debt is fixed rate (mortgage, student, and auto loans) and 11% is floating rate (credit cards, HELOC, and other types of debt).
As a result, the transmission mechanism of monetary policy has been weak. Combined with significant excess savings during the pandemic, Fed hikes have had a limited impact on the consumer.
Source: FRBNY Consumer Credit Panel, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Key themes for credit investors:
1) New issuance rallying sharply as demand remains strong from pension, annuity sales, and retail. Credit spreads continue to tighten and are trading near the tight end of the two-year range. Beta compression remains a key theme across credit, with the exception of CCCs.
2) Credit spreads are tight, but all-in yields are attractive with a Fed cutting outlook. Strong demand from yield buyers should limit the extent of any spread widening, barring a material worsening in the macro backdrop.
3) Uncertainty about the ongoing soft landing will keep volatility elevated. Hard landing or reacceleration in inflation are still possible scenarios.
4) Mid-beta credit such as BBB debt offers the attractive combination of wide spreads and stronger sponsorship from yield-driven demand. Financial conditions have eased recently but funding costs remain high, which combined with slowing growth could impact firms with weak balance sheets. Elevated cash balances on investment grade corporate balance sheets could drive a pick-up in M&A activity.
See important disclaimers at the bottom of the page.
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See important disclaimers at the bottom of the page.
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The data for office use across the country shows that hybrid work is here to stay, see chart below.
The numbers show the average for a week where Wednesdays can be as high as 60%, and Mondays and Fridays as low as 30%.
The data is weekly and comes from 300,000 workers in 10 different cities, and in New York, the data covers 200 buildings and 70,000 workers.
The latest data shows that the lowest office occupancy rate is for Philadelphia at 37%, and the highest is Austin at 58%.
For more discussion of this topic, see also here.
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The price of transporting a container is rising and air freight rates are increasing, but the ongoing supply chain problems are not broad based like the way they were during the pandemic, see our chart book available here.
See important disclaimers at the bottom of the page.
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If the Fed cuts in March, it will be eight months after the last Fed hike, which is exactly the average of all previous Fed hike cycles, see chart below.
Source: FRB, Haver Analytics, Apollo Chief Economist. Note: Discount rate used before 1988. See important disclaimers at the bottom of the page.
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The average price of a hotel room in Manhattan is now $375 per night, see chart below.
Source: Timessquarenyc.org, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Home prices are in freefall in Germany, driven by higher rates, high construction costs, and massive amounts of red tape in the housing sector, see chart below.
This downtrend is in sharp contrast to the US, where home prices are rising.
With more persistent inflation in Europe, and the ECB therefore cutting after the Fed, the downward pressure on home prices is likely to continue.
Source: Eurostat, Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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