The Deficit Dilemma

Matthew Allgood |

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The growing gap between government spending and tax revenue has created a significant challenge for debt markets. Persistent deficits require increased borrowing, adding to the national debt and driving a flood of new Treasury issuance. This influx of supply pushes yields higher, eroding the value of existing bonds and increasing the cost of debt. The reinstatement of the debt ceiling in early 2025 adds another layer of risk, with potential gridlock threatening market volatility. 

These factors collectively challenge the traditionally "safe" status of fixed-income investments. We focus on managing these risks by staying disciplined, prioritizing flexibility, and ensuring portfolios are positioned to navigate the challenges of rising yields and economic uncertainty.

The Deficit Dilemma

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Source: Bloomberg, Redwood. Data as of 12/6/2024. Date Range from 2/29/2000 – 10/31/2024.​

Regards,

Allgood Financial

Disclosure: This piece is for informational purposes only and contains opinions of Redwood that should not be construed as facts. Information provided herein from third parties is obtained from sources believed to be reliable, but no representation or warranty is made as to its accuracy or completeness. Charts and graphs are for illustrative purposes only. Discussion of any specific strategy is not intended as a guarantee of profit or loss. Past performance is not a guarantee of future results. The objectives mentioned are not guaranteed to be achieved. Investors cannot invest directly in any of the indices mentioned above. Diversification of asset class is not a guarantee against loss.

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