In August, Tariff Revenues Reached a New Monthly Record in the U.S. of $30 Billion, Rising Nearly 300% Compared to the Same Month Last Year.
However, they were overshadowed by the fiscal deficit figure, which amounted to $345 billion for the month. Analysts consulted by Funds Society agreed that the deficit will continue to grow. It is one of the issues that concerns investors the most.
With one month remaining in the 2025 fiscal year, the year-to-date deficit increased by $76 billion, or 4%, reaching $1.973 trillion. This figure was only surpassed in 2020 and 2021, years of extraordinary federal government spending in response to the coronavirus crisis.
The Congressional Budget Office (CBO) projects that deficits between 2025 and 2034 will total about $21.1 trillion if current tax and spending laws remain essentially unchanged.
The agency stated that the debt-to-GDP ratio would reach 107% during the 2029 fiscal year, surpassing the peak reached in the 1940s, and would continue rising to 156% by 2055. This ratio is projected to be 100% for fiscal year 2025.
Market Consensus: No Swift Deficit Correction Expected
There is market consensus: a rapid correction of the deficit is unlikely. On the contrary, it is expected to remain high in the coming years, partly due to mandatory spending commitments (pensions, healthcare, debt interest), which will continue to increase.
Key Concern
Larry Adam, CIO of Raymond James, indicated a few days ago in a webinar that U.S. debt remains a “key concern” for the markets, especially along the long end of the yield curve.
Although yields remain relatively stable in global comparison, fiscal fears, inflation, and the independence of the Federal Reserve are putting pressure on long-term bonds, he explained.
Despite record debt issuance and price increases driven by tariffs, a sustained rise in Treasury yields is not expected, although episodes of volatility are. The yield curve could continue to steepen if the Fed cuts rates, but the potential for capital appreciation is limited, he added.
Fragile Fiscal Outlook
“While the improvement (in the latest Monthly Treasury Statement) is welcome, it does not change our assessment of the fragile fiscal outlook,” Tomás Villa, Head International Strategist at Argentine firm ConoSur Investments, told Funds Society.
“The level of the deficit is very high and, in fact, the improvement we are seeing benefits from a transition period in which tariff revenues are beginning to be collected, but the loss of fiscal resources associated with the Big Beautiful Bill has not yet been felt,” he added.
Although the latest data show an improvement in the U.S. fiscal balance—annualized to a moderated 6% of GDP—“spending momentum is not easing. Healthcare (including Medicare), Social Security, and interest on the debt, which are the three major spending categories and together represent nearly two-thirds of total outlays, are among the fastest-growing items this year,” Villa explained.
For this reason, ConoSur Investments envisions “a deficit widening again starting next year and remaining elevated, given the current mix of revenues and expenditures.”
Tariffs and Trade
Looking ahead, the Trump administration has reinforced the narrative of using tariffs as a tool for deficit correction, with measures already implemented in strategic sectors such as steel, aluminum, and Chinese consumer goods, noted Felipe Mendoza, financial markets analyst at ATFX LATAM.
However, he believes the trade deficit will likely remain high. “A true correction would only occur if tariffs were accompanied by a strong rebound in domestic production and competitiveness—something that requires time, investment, and complementary industrial policies,” he explained.
Investment Strategy Outlook
In this context, Raymond James believes it is a good time to continue taking advantage of current high rates, especially in investment-grade corporate bonds (BBB or higher), positioning portfolios with individual bonds in an active and strategic manner.
These bonds, the firm believes, offer capital security and a known yield if held to maturity. Although their prices may fluctuate with the market, a personalized portfolio of individual bonds fulfills its purpose: to return the principal within set timeframes and generate income through coupons.
