Get Ready for a US Treasury Buyer Boycott

Weak fiscal policy could eventually push bond buyers to ditch US debt, Standard Chartered CEO Bill Winters warned.

And the current US election season isn't offering much hope of that changing.

"There's very little sign of fiscal discipline from either party right now, which is, I think, concerning. But reality finds ways of biting," he told Bloomberg TV at the World Economic Forum in Davos.

In the last year, investors have become more wary of US overspending, given concerns that it's fueling unsustainable debt levels over the long term. Meanwhile, political brinkmanship over the debt has contributed to a credit downgrade from Fitch Ratings in August.

The bond market has already witnessed some rumblings among buyers, as several debt auctions last fall were met with weak demand, causing long-dated yields to top 5%. That could be a preview of more to come.

"It's much more likely that you just get a little bit of a buyer's boycott, and you see Treasury yields that are not behaving consistent with the way the Fed would like short-term rates to play out," Winters said. 

In addition, new banking regulations could further hit demand, he warned, as they will require US dealers to hold more capital, pulling down their investing liquidity.

Previously, JPMorgan CEO Jamie Dimon expressed disappointment with the proposed regulation, noting that it would dampen investing and could slow the economy.

Winters isn't alone on Wall Street to warn about US spending levels. Others, such as Ray Dalio and Bill Gross, have outlined that the US may face trouble in finding buyers for its ballooning debt supply, forcing borrowing costs to keep going up.

This article originally appeared on Market Insider