However, a significant short-term obstacle on the horizon relates to the burgeoning public debt and its repercussions on commodity markets. The U.S. Treasury Department, in its perennial quest to minimize the long-term cost of U.S. debt, resorts to issuing short-term debt instruments, such as T-bills, during periods of elevated interest rates.
Even if interest rates undergo a reduction in the upcoming year, the persistently high public deficit will likely demand continued debt issuance. This, in turn, amplifies the overall debt burden on the country, potentially requiring higher market premiums.
Shifting the focus to the realm of real rates, an examination of spreads reveals a nuanced perspective. Presently, the inversion of spreads is not likely. Drawing on historical correlations, the NY arabica coffee carry has shown a positive relationship with U.S. yields.
However, the delicate balance between debt financing and inflation control introduces complexities. Fundamentals emerge as a dominant factor, emphasizing the intricate interplay of economic forces.
