Talking Numbers - CNBC | Yahoo Finance

Sponsored by
Talking Numbers

Why lower deficit can’t save the bond market

Talking Numbers

The federal budget deficit dropped below $700 billion this past year. What's next for rates?

Good news for budget hawks: The federal budget deficit is finally below $1 trillion for the first time in half a decade. In fact, it's clocked in at under $700 billion. That can have some interesting consequences, particularly with what the Federal Reserve Bank does next.

According to the Treasury Department, the US deficit was about $680 billion. That's about half of what it was in 2009 but still more than 2008's $455 billion deficit, which was the record before the financial crisis. The government took in $2.77 trillion in revenues, which was about 13% higher than the previous year. Treasury says the increase is four-fifths due to higher tax receipts. Spending is also down 2.4% to $3.45 trillion, in part because of the "sequester" that began in March.

(Watch: Deficit hits 5-year low)

In 2008, the total government debt held by the US public was $5.8 trillion, according to the Congressional Budget Office. Over the last five years, the government spent an additional $5.8 trillion more than it took in. Add to that interest and $4.9 trillion in intragovernmental holdings (Social Security and the like) and you get a total debt of $17.1 trillion. To put it in perspective, over the last twelve months, the entire US Gross Domestic Product was $15.7 trillion.

Interest payment on all of that debt for the fiscal year was $415.6 billion, or about 61% of the US deficit. Basically, the US is borrowing money to pay its debt and then some.

Factoring in how money changes hands (its velocity) in the economy, and interest payment on government debt has a cost, according to Andrew Busch, Editor and Publisher of The Busch Report. With debt now more than the GDP, "this translates to a loss of around 1% of GDP per year to service the interest on the debt," notes Busch. "As far as bonds go, this is something that's helpful but they've got a long way to go. It's the overall problem with the deficits and the debt in the United States – especially with entitlements – that's the key to the bonds future."

(Watch: Why Obamacare could raise your premiums at work)

On the technicals, Steven Pytlar, Chief Equity Strategist at Prime Executions, notes that US Treasury 10-year bonds have been in a downtrend for well over a month and are yields are now testing the 2.47% support level. "What generally happens on a technical basis when you come into the downside target at first support is you start to chop sideways and the market waits for the next signal," says Pytlar. "That's what we're doing right now."

What can we expect when we break through these key levels? To see more analyses by Busch and Pytlar on what's next for US interest rates, watch the video above.

More from Talking Numbers:
Market set for ‘a sharp and swift decline’: Trader
Billion-dollar fund manager: This sector is overvalued
Why Garmin hasn’t gotten lost


Follow us on Twitter: @CNBCNumbers
Like us on Facebook:


View Comments (70)

Recommended for You

  • China's rich pimp their planes as jet market takes off

    Shanghai (AFP) - When a Chinese customer asked for the interior of his new Bombardier Challenger 850 jet to be covered with pricey black carbon fibre, the designer was shocked -- but happy to oblige.

  • Obama admin. says health subsidies will continue

    WASHINGTON (AP) — A federal appeals court delivered a potentially serious setback to President Barack Obama's health care law Tuesday, imperiling billions of dollars in subsidies for many low- and middle-income people who bought policies.

    Associated Press
  • What a Marijuana ETF Would Look Like

    The changes taking place around marijuana for medical use and for recreational use are the biggest in almost everyone’s lifetime. There are quite literally billions of dollars up for grabs for those who ...

    24/7 Wall St.
  • CEO: Rivers to quit Clippers if Sterling stays

    LOS ANGELES (AP) — The interim CEO of the Los Angeles Clippers testified Tuesday that coach Doc Rivers told him he will quit if Donald Sterling remains the owner of the team.

    Associated Press
  • We Paid Off $90K of Debt in 4 Years

    One couple went into debt to give their son the education that he needed, eventually owing nearly $90K on credit cards. Here's how they paid it off.
  • U.S. housing turning the corner, inflation creeping up

    By Lucia Mutikani WASHINGTON (Reuters) - U.S. home resales hit an eight month-high in June, suggesting the housing market was gradually regaining momentum and would help the economy to stay on a higher growth path this year. The third straight month of home sales gains, reported by the National…

  • Airlines ban flights to Israel after rocket strike

    JERUSALEM (AP) — A Hamas rocket exploded Tuesday near Israel's main airport, prompting a ban on flights from the U.S. and many from Europe and Canada as aviation authorities responded to the shock of seeing a civilian jetliner shot down over Ukraine.

    Associated Press
  • Herbalife Plummets

    Herbalife shares were down as much as 11%...

    Business Insider
  • Play

    How to Build Your Own Annuity

    Instead of paying an insurance company, financial advisor Allan Roth recommends building your own "indexed annuity" that protects principal while giving market upside.

    WSJ Live
  • Goldman Sachs: Here Are 25 Small-Cap Stocks to Buy

    While Goldman Sachs is cautious on small-cap stocks due to valuation concerns, the firm still finds some pockets of opportunity among individual names within the group.

    The Wall Street Journal
  • New India government urges changes to World Bank

    India's new government has called for reforms to the World Bank structure to reflect the "emerging" clout of developing nations in a meeting with visiting bank chief Jim Yong Kim. The government, which took office in May, said in a statement late Tuesday that Finance Minister Arun Jaitley stressed…

  • China food scandal spreads, drags in Starbucks, Burger King and McNuggets in Japan

    By Adam Jourdan SHANGHAI (Reuters) - The latest food scandal in China is spreading fast, dragging in U.S. coffee chain Starbucks, Burger King Worldwide Inc and others, as well as McDonald's products as far away as Japan. McDonald's Corp and KFC's parent Yum Brands Inc apologized to Chinese…

  • Detroit retirees back pension cuts by a landslide

    DETROIT (AP) — A year after filing for bankruptcy, Detroit is building momentum to get out, especially after workers and retirees voted in favor of major pension changes just a few weeks before a judge holds a crucial trial that could end the largest public filing in U.S. history.

    Associated Press
  • Beef pollutes more than pork, poultry, study says

    WASHINGTON (AP) — Raising beef for the American dinner table does far more damage to the environment than producing pork, poultry, eggs or dairy, a new study says.

    Associated Press
  • JetBlue pilot among 6 arrested in Boston drug bust

    BOSTON (AP) — A JetBlue pilot from Florida is among six people arrested by Boston police over the weekend in an investigation of drug dealing incidents near the Boston Common.

    Associated Press
  • Rebels release train with bodies from downed jet

    HRABOVE, Ukraine (AP) — Bowing to international pressure, pro-Moscow separatists released a train packed with bodies and handed over the black boxes from the downed Malaysia Airlines plane, four days after it plunged into rebel-held eastern Ukraine.

    Associated Press
  • Microsoft CEO, Seeking Growth, Tells Managers to Step It Up

    The day Satya Nadella became Microsoft Corp.'s chief executive officer, he invited several dozen vice presidents to breakfast and had a simple, calm admonition for them: "Can you step it up?" The engineer's tone was a departure from the yelling and wild gesticulations favored by his salesman…

  • Play

    U.S. Stocks Open Lower

    U.S. stocks kicked off the week in a decline, as investors paused following last week's run to record highs. MarketWatch's Victor Reklaitis joins Paul Vigna on the News Hub with the details, plus which stocks to keep an eye on. Photo: Getty

    WSJ Live
  • Top Analyst Upgrades and Downgrades: Apple, ARM, DaVita, GE, GoPro, Itron and Many More

    These are the top analyst upgrades, downgrades and initiations from Wall Street firms on Monday, July 21, 2014. They include Apple, ARM Holdings, DaVita Healthcare, General Electric, GoPro and Itron.

    24/7 Wall St.
  • 6 Money Lessons You Should Have Learned Before College

    In a matter of weeks, the class of 2018 will be...

    Business Insider