EUROZONE ISSUANCE: E110bln Investment 2025 Points Towards Ramp-Up In Cash Needs
German finance minister Klingbeil has mentioned he is planning to increase 2025 government investment in the country to E110bln according to Reuters. While current net issuance estimates are a bit unclear against the background of 2025 budget details still to be announced, the comments point towards cash needs in Germany potentially ramping up quicker than anticipated.
- German government "investment" was E58.5bln in 2024. The E500mln infrastructure fund passed as part of the debt brake loosening in March is planned to be spent over 12 years - that would equate to E42bln/year on average, or E100bln when adding the two figures up. We hypothesise that at least the remaining E10bln could be classified as military spending from a debt brake / funding standpoint but flow into the government's definition of "investment" considering the figures above. Gov't officials recently commented on increasing German military spending to 5% of GDP by 2032 - 3.5% conventional and an additional 1.5% broader infrastructure which can also be used for military purposes.
- The Bundesbank noted in its last monthly report that it expects the "fiscal realignment [as] unlikely to have any impact [in 2025] due to the necessary lead time". Despite "investment" likely lagging behind currently following preliminary budget management, a pickup to E110bln in 2025 should constitute a risk towards a higher deficit / net issuance already in 2025.
- Klingbeil has previously mentioned he is looking to gain internal coalition agreement for the 2025 budget by 25 June, and parliamentary passing by mid-July ('Klingbeil Doesn't Oppose Scope For Higher NATO Spending' - May 15).
- DFA will publish its Q3 funding outlook in late June. It has flagged considerations to revive the 7y and 50y segments (potentially already in H2) on the back of the increased cash needs. In our view, 7-year Bunds would be well received but it may not be the best time to launch an ultra-long Bund given the steepening of yield curves globally.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
US TSYS: Extraordinary Measures And Cash Look Sufficient To Head Off X-Date
Treasury has about $164B in "extraordinary measures" available as of April 23 to avoid hitting the debt limit, per its regular report out Friday. That's out of a maximum total of $375B (they have used $211B).
- With Treasury cash looking healthy (around $600B), that's a fair amount of dry powder to get through the summer months to wait out the debt limit impasse. Tax receipts have looked strong with tariff revenues also starting to boost cash flows, further reducing the near-term urgency to adjust bond issuance.
- This has also helped push back analyst “x-date” expectations to later in the summer/September. We expect to hear from Treasury about its own x-date assumptions next week.
US TSYS: Treasury Market Trading Stayed Orderly In April: Fed Report
Liquidity across financial markets including the Treasury market deteriorated after President Trump's April 2 reciprocal tariffs announcement but market functioning was generally orderly, according to the Federal Reserve's semiannual report on financial stability, released Friday. (PDF link is here)
- Treasury market liquidity has been poor for years and yields were particularly volatile in early April, contributing to a deterioration in market liquidity, the Fed said.
- Nevertheless "trading remained orderly, and markets continued to function without serious disruption," according to the report, which looked at information available as of April 11.
FED: Ex-Gov Warsh: Fed Has Failed To Satisfy Price Stability Remit
From our Washington Policy Team - Some fairly sharp words today from ex-Fed Governor Warsh on the central bank (who for what it's worth is seen by betting markets as by far the frontrunner for the next Fed Chair):
- The best way for the Federal Reserve to safeguard its independence is for policymakers to avoid expanding the institution's role over time, including wading into policy areas that are outside its core mission, former Fed Governor Kevin Warsh, a leading contender to replace Jerome Powell as chair next year, said Friday.
- "I strongly believe in the operational independence of monetary policy as a wise political economy decision. And I believe that Fed independence is chiefly up to the Fed," Warsh said in a speech at a Group of Thirty event on the sidelines of the IMF meetings. "Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability. It has also contributed to an explosion of federal spending." His speech made no mention of Trump's tariffs or the appropriate monetary policy to deal with them.
- He said the ideas of data dependence and forward guidance widely adopted by Fed officials are not especially useful and might even be counterproductive.
"We should care little about two numbers to the right of the decimal point in the latest government release. Breathlessly awaiting trailing data from stale national accounts -- subject to significant, subsequent revision -- is evidence of false precision and analytic complacency," he said.
"Near-term forecasting is another distracting Fed preoccupation. Economists are not immune to the frailties of human nature. Once policymakers reveal their economic forecast, they can become prisoners of their own words. Fed leaders would be well-served to skip opportunities to share their latest musings."
