Analyst Predicts: US to Face Its Own ‘Bank of England’ Debt Crisis Prior to Elections

Otavio Costa, a Macro Strategist at Crescat Capital, a multidisciplinary asset management firm, has expressed concern about the state of the U.S. government securities liquidity index and its potential implications for the future of U.S. debt. He suggested that the U.S. is on the verge of experiencing its own ‘Bank of England’ moment prior to the elections, which could lead to a sharp increase in yields.

Analyst Warns of Bank of England Moment for US Debt, Steep Yield Increases

Otavio Costa, Macro Strategist of Crescat Capital, warned about upcoming problems for the U.S. economy before the presidential elections. On social media, Otavio calls attention to the deteriorating liquidity of the U.S. government securities index, which is at its worst levels since the 2011 European debt crisis.

Costa declared that what is more troubling is that this eroded liquidity for Treasuries happens at a time when the U.S. has “one of the largest interest rate differentials compared to other developed economies in history” compared to other developed countries.

He believes the stage is set for the U.S. economy to experience its “Bank of England” moment. With this, Costa refers to a sharp increase in treasury yields caused by announcements of £45 billion (over $57 billion) in unfunded tax cuts, raising worries about the debt sustainability of the UK in September 2022.

He stressed:

We are facing one of the worst fiscal imbalances in history amidst an inflationary environment with declining demand from foreign central banks relative to Treasury issuances.

Costa also highlighted that traditional 60/40 investment portfolios, which allocate 60% of funds to equity and the remaining 40% to bonds, might shift some of their allocation to assets like gold. This is to mount defensive structures for upcoming imbalances, taking advantage of safe-haven commodities.

Other analysts and experts have warned about an impending debt crisis since earlier this year. Robert Kiyosaki warned about the ballooning state of the U.S. debt in January, recommending investors purchase gold, silver, and bitcoin. In March, Mike Novogratz, CEO of Galaxy Digital, stated that the government should raise taxes and cut spending to avoid a debt spiral crisis.