Sovereign bond sales could increase further next year as budget deficits balloon across the developed world, Bloomberg reported this week.

According to the outlet’s analysis, this comes at a bad time as central banks have accelerated the reduction of huge bond holdings amassed through quantitative easing.

“This double whammy means bond yields, particularly at the longer end of the curve, are set for a difficult 2024,” Bloomberg wrote, suggesting the US Federal Reserve, the European Central Bank, and the Bank of England should curb their enthusiasm for shrinking their balance sheets.

According to the Bank of America, cited in the report, Treasury bond issuance is expected to reach a record $1.34 trillion next year. Meanwhile, the US deficit in 2026 is projected to climb towards $2 trillion.

The report indicated that multiple factors affect bond values, but “the one constant in an ever-changing world is rising debt issuance.”

The US Fed has reportedly been trimming its balance sheet by $95 billion a month since June 2022, reducing it so far to $7.8 trillion, nearly double the pre-pandemic $4 trillion mark.

The risk remains that the combination of monetary tightening by the Fed with expanding US Treasury supply will prove “deadly,” Bloomberg wrote.

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