‘No sign of Liz Truss moment’ in US despite size of debt

The next US president is not at immediate risk of a “Liz Truss” moment, despite America’s ballooning government deficit, one of the world’s leading bond investors has said.
Libby Cantrill, head of US policy at Pimco, a leading global bond fund, said investors were not showing any signs of nervousness over holding US government bonds despite forecasts showing the debt pile heading for historic highs above 106 per cent of GDP.
“We don’t necessarily expect a Liz Truss moment in the US Treasuries market,” Cantrill told The Times, referring to the sharp increase in long-term debt yields and the steep fall in the pound after Truss’s mini-budget in September 2022.
“The dollar is the reserve currency and Treasury securities are a reserve asset, so there is structural demand for US assets and that is a luxury that other countries don’t have.”
Figures from the Congressional Budget Office released last week showed the federal deficit was over $1.8 trillion in 2024, approximately 6.4 per cent of GDP, and the national debt was heading for record highs above 100 per cent of GDP.
Cantrill said neither the Democrats nor the Republicans had made fiscal consolidation and reducing the deficit a priority in their economic policies, a factor that would push up bond yields on longer-dated bonds “to compensate investors for holding debt in the US, given where the deficits are”.
She added: “We are not totally sanguine about the fiscal challenges but we don’t necessarily see selling across the yield curve. As long as the music is playing, Washington keeps dancing.”
• In the US, high prices are here to stay
Analysts have begun warning of the return of “bond vigilantes” in some advanced economies, where bond-holders dump government debt in protest at loose fiscal policies. Some market-watchers have warned of the risk of a “buyers’ strike” in the UK if the Labour government decides to spend tens of billions of pounds after freeing up fiscal space in this month’s budget.
The ratings agency Fitch has downgraded its outlook on French government debt, warning that the European Union’s second-largest economy was heading for a debt pile of 118.5 per cent of GDP by 2028. France’s deficit is estimated at 7 per cent of GDP, one of the highest in the EU, and the government has been forced to announce €50 billion in austerity plans to shrink the deficit to 5 per cent of GDP next year.
The US has remained largely exempt from bond market pressures, despite losing its triple-A credit rating from Fitch last year. Cantrill said another debt downgrade from Moody’s, the only major agency still awarding the US the highest credit rating, “could get attention” and generate market volatility.
One of the immediate fiscal pressures facing the US is the status of a raft of corporate tax cuts made under the first Trump administration, which are due to expire next year. They are worth an estimated $4 trillion over the next decade.
“We expect deficits to remain high most because neither party is going to do anything on raising revenues,” Cantrill said. “The bigger longer-term issue is also on the cost side, like entitlement programmes such as social security and healthcare.”