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Treasury Market Trends

- March 28, 2022

TREASURY MARKET TRENDS

Cyclical vs. secular rise? Yields have been in a downward trajectory since the early 1980s, but trending higher since 2020 lows

Federal response to COVID-19 has resulted in massive deficit spending, which required massive monetization

Even with record debt levels, interest expense remains low but is expected to rise; weighted average maturity of government debt is 5.9 years

At current yield, annual interest costs consume 22% of US tax receipts; at an average rate of 5.0%, interest cost would consumer nearly 50%

The productivity of debt has been on a downward trajectory since the 1950s, which has negatively impacted economic growth

Government debt jumped as a result of the crisis response

Treasury cash balance has been drawn down to fund spending; temporary increases in debt ceiling allowed the government to raise cash early 2022

Issuance expected to increase due to continued fiscal support; Congress raised the federal debt limit by $2.5 trillion in December

U.S. Treasury money market funds saw $57 billion outflows in January, the largest outflows since June 2020

Foreign holdings of Treasuries recently topped out and rolled over

Japan, China and the UK are the largest holders of US treasuries, accounting for ~40% of foreign held bonds.

Fed Treasury holdings have risen all year, should plateau now, but unwind is expected to start as early as May

Fed expected to complete tapering long after the pandemic stimulus programs sunset; Build Back Better to require $1.75 trillion in funding

Roughly 20% of the Fed’s treasury assets mature within the next 12 months, amounting to >$1 trillion

Roughly 20% of the Fed’s treasury assets mature within the next12 months, amounting to >$1 trillion

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DEFINITIONS

Asset class performance was measured using the following benchmarks: U.S. Large Cap Stocks: S&P 500 TR Index; U.S. Small & Micro Cap: Russell 2000 TR Index; Intl Dev Large Cap Stocks: MSCI EAFE GR Index; Emerging & Frontier Market Stocks: MSCI Emerging Markets GR Index; U.S. Intermediate-Term Muni Bonds: Bloomberg Barclays 1-10 (1-12 Yr) Muni Bond TR Index; U.S. Intermediate-Term Bonds: Bloomberg Barclays U.S. Aggregate Bond TR Index; U.S. High Yield Bonds: Bloomberg Barclays U.S. Corporate High Yield TR Index; U.S. Bank Loans: S&P/LSTA U.S. Leveraged Loan Index; Intl Developed Bonds: Bloomberg Barclays Global Aggregate ex-U.S. Index; Emerging & Frontier Market Bonds: JPMorgan EMBI Global Diversified TR Index; U.S. REITs: MSCI U.S. REIT GR Index, Ex U.S. Real Estate Securities: S&P Global Ex-U.S. Property TR Index; Commodity Futures: Bloomberg Commodity TR Index; Midstream Energy: Alerian MLP TR Index; Gold: LBMA Gold Price, U.S. 60/40: 60% S&P 500 TR Index; 40% Bloomberg Barclays U.S. Aggregate Bond TR Index; Global 60/40: 60% MSCI ACWI GR Index; 40% Bloomberg Barclays Global Aggregate Bond TR Index.