Core Viewpoint - The article discusses the impact of the U.S. debt ceiling on Treasury supply and liquidity, predicting a potential increase in 10-year Treasury yields to 4.8% after the debt ceiling issue is resolved, driven by supply-demand imbalances and resilient inflation [1][2]. Group 1: Economic and Policy Analysis - Since mid-January, the debt ceiling has limited Treasury supply, leading to a liquidity turning point and a decrease in the 10-year yield from 4.8% to around 4.2% [1]. - The uncertainty surrounding Trump's policies has negatively impacted market confidence, but recent data suggests economic resilience, with stable housing demand and a rebound in job creation [4][14]. - The article anticipates that the pessimistic sentiment regarding the economy may bottom out in the second quarter, aided by the potential implementation of tax cuts and deregulation policies [4][5]. Group 2: Fiscal Outlook - The fiscal deficit has not shown signs of reduction, with the cumulative deficit for the first five months of the fiscal year reaching $1.15 trillion, compared to $828.1 billion in the same period last year [18][20]. - The proposed "One Big Beautiful Bill" could further increase the deficit, with a projected net increase of approximately $2.8 trillion in the basic deficit by 2034 [24][25]. Group 3: Monetary Policy and Liquidity Risks - The article highlights that the debt ceiling has led to a tightening of liquidity, with the Federal Reserve preparing for potential liquidity risks as the debt ceiling is expected to be resolved by June [27][28]. - The Fed has already begun to slow down its balance sheet reduction, decreasing the monthly reduction from $250 billion to $50 billion [28]. Group 4: Supply and Demand Analysis - The supply of Treasuries is expected to increase post-debt ceiling resolution, with projected net financing of approximately $1.4 trillion in the third quarter [27][33]. - Demand for Treasuries remains weak, with significant reliance on money market funds, while foreign demand has decreased, particularly from key countries like Japan and the UK [36][39]. Group 5: Interest Rate Projections - The article predicts that long-term interest rates will continue to rise, potentially exceeding 4.8% after the debt ceiling is resolved, due to increased supply and persistent demand shortages [45][46]. - The anticipated economic recovery and potential tax cuts may support higher nominal growth rates, which could lead to an increase in interest rates [47][58].