In July the U.S. government spent more than twice what it collected
Today’s Treasury price action, which followed a benign CPI print and moderating rate-hike expectations, supports the view that the “high" level of yields is less about inflation and/or Fed concerns, and much more about the heavy weight of upcoming government and corporate debt…
In July the U.S. government collected $334 billion and spent $766 billion. That left a $432 billion hole in a single month, the largest ever for a July.
Reuters pulled one more line out of the Treasury statement. Tariffs are no longer a column money arrives in. Refunds of $33.38 billion in July ran past what customs actually collected, leaving net customs receipts at minus $8.55 billion. Two months are left in the fiscal year and the running deficit is already $1.799 trillion. That is past the $1.775 trillion the government ran for all of last fiscal year. For the bond market these numbers mean one thing. Whatever is missing has to be printed as new Treasuries and sold.
Inflation is not the only thing setting yields
July consumer prices came in where the market expected, and the odds of a September hike eased a little. Long-dated yields still did not come down.
The long end sits more than a full point above the short end. If inflation expectations were the problem, short maturities would be rising too, and they are not. That runs the same direction as El-Erian's supply reading.
Trading Economics, closing quotes, retrieved 2026-08-12
A Treasury bond is a thing on a shelf. If the number of buyers holds steady and the pile for sale grows, the price has to be marked down to move it. In bonds, marking the price down and pushing the yield up are the same sentence. The longer the maturity, the harder this lands. Someone holding for thirty years is pricing in how much more paper will be printed across those thirty years.
The government is not the only seller
The piece reports that the large technology firms building AI data centers issued $225 billion of bonds in the first half of this year alone, a pace of $400 billion for the year. On Nikkei's count their off-balance-sheet borrowing reaches $1.65 trillion. Government and these companies are standing in the same queue for the same pool of money. And the Federal Reserve is no longer the large buyer that used to absorb Treasuries in size. One buyer stepped out of the room while the sellers doubled.
Where El-Erian's reading gets settled
So is long-dated paper cheap right now, or expensive. The answer comes out of the issuance calendar rather than the next inflation print. If inflation keeps easing and the 30-year still sits above 5%, what moves this market is supply rather than prices. If the 30-year falls alongside inflation, El-Erian's reading loses its footing. With the market arguing about a hike rather than a cut into the September Fed meeting, that distinction lands on equity holders' arithmetic just as much as on bondholders'.
- The Treasury published the July budget statement: $334 billion collected, $766 billion spent, a $432 billion gap in one month.
- The day belonged to inflation. July CPI landed in line with forecasts and the odds of a September hike eased.
- Long-dated yields did not follow them down. El-Erian reads that as debt supply, not inflation, setting the level of yields.
Sources
- Original Mohamed El-Erian (@elerianm) · 2026-08-12
- July budget statement Reuters, citing the U.S. Treasury Monthly Treasury Statement · 2026-08-12
- Corporate supply Fortune, on AI-related bond issuance and off-balance-sheet borrowing · 2026-07-31
- Treasury yields Trading Economics, 2-year, 10-year and 30-year closing quotes · retrieved 2026-08-12
Retrieved 2026-08-12 · yields are same-day closing quotes; fiscal figures are from the U.S. Treasury's July Monthly Treasury Statement