Baird Fixed Income Insights: Convexity Pulse
Aug 24, 2026 · 29 min · 7 segments
In this week’s Convexity Pulse, Kirill Krylov and Steven Scheerer discuss how rising federal debt and persistent Treasury supply could keep pressure on long-duration assets even if the Fed eventually…
Kirill KrylovHost
Steven ScheererHost
The national debt has now officially crossed $40 trillion with the T, which is certainly an eye-catching number.
But for bond investor Stephen, the milestone itself is probably less important than what sits behind it.
The system deficits, enormous treasury financing needs, and interest expense that is becoming much larger, ever increasing part of the federal budget.
The more relevant numbers, I think, are roughly $1.8 trillion deficit already accumulated through July and net interest expense approaching $1 trillion.
And that means a continuing stream of treasury issuance that private investors ultimately need to absorb.
You know, at some point, you could almost describe the financing requirement like REM in Everybody Hurts.
There's still a lot of borrowing ahead, right? Current estimates call for, let me see my cheat sheet, roughly $739 billion of privately held net marketable borrowing in the July through September quarter, followed by, let me see, another $620 billion in the fourth quarter.
So this doesn't necessarily translate immediately into dramatically larger coupon auctions.
Fiscal concerns certainty aren't the only reason long rates are elevated, I think.
A Fed easing cycle doesn't automatically mean the entire curve rallies together.
The national debt has now officially crossed $40 trillion with the T, which is certainly an eye-catching number.
But for bond investor Stephen, the milestone itself is probably less important than what sits behind it.
The system deficits, enormous treasury financing needs, and interest expense that is becoming much larger, ever increasing part of the federal budget.
The more relevant numbers, I think, are roughly $1.8 trillion deficit already accumulated through July and net interest expense approaching $1 trillion.
And that means a continuing stream of treasury issuance that private investors ultimately need to absorb.
You know, at some point, you could almost describe the financing requirement like REM in Everybody Hurts.
There's still a lot of borrowing ahead, right? Current estimates call for, let me see my cheat sheet, roughly $739 billion of privately held net marketable borrowing in the July through September quarter, followed by, let me see, another $620 billion in the fourth quarter.
So this doesn't necessarily translate immediately into dramatically larger coupon auctions.
Fiscal concerns certainty aren't the only reason long rates are elevated, I think.
A Fed easing cycle doesn't automatically mean the entire curve rallies together.
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