U.S. Debt Cost Predicted to Break $1 Trillion

The 17-week bill auction today tendered $103.3 billion, of which the Treasury accepted $33.8 billion. This produced a T/A at 3.05, largely in line with the past four auctions. 

Median yield came out to 4.4 percent, the highest of any 17-week auction since the bill was introduced seven weeks ago. 

Thanks to the high interest rates on recent auctions, the average estimated rate on the total U.S. debt is now 2.13 percent. As of November 29, the Treasury reported the U.S. debt at $31,373.4 billion, which leads to a static cost for the debt of $667 billion. This number is static in the sense that it predicts the cost for the total fiscal year given that the total debt does not rise beyond the level of November 29.

A dynamic estimate of the cost for the entire fiscal year is much more dire, but before we report the number we need to clarify two key assumptions:

1. The yield cost continues to rise for the remainder of the fiscal year as it has in the past month; and

2. There is no major shift in the Treasury's policy on how to distribute the debt among its the maturity classes of its securities. 

Given these assumptions, which are made for purely analytical purposes, the total cost of the debt by the end of FY2023 would be $1,318.6 billion. 

If we assume that the current trend in rising yield cost tapers off, so that the increase is always 9/10ths of what it was in the previous month, the total yield cost for the entire fiscal year stops at $1,041.74 billion.

While these forecasts are based on stringent assumptions, they nevertheless demonstrate that it is difficult to project a scenario where the cost of the U.S. debt will not break the $1 trillion barrier for FY2023.

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

Debt Cost Rises by Another $1.6bn

 In its monthly auction for 1-year bills, the Treasury on Tuesday sold $38.3 billion worth of debt. This was a hair below the maturing batch of $38.8 billion. The auction attracted $100.4 billion in tender offers, resulting in a T/A ratio of 2.62, in line with the past three auctions, but lower than the 2.82-3.2 T/A's that the 1-year auctions saw early in the year. 

The median yield at today's auction climbed to 4.52 percent, a modest increase over last month's 4.45 percent. This marks the second month in a row above four percent. 

The biggest impact of today's auction yield is its increase in the cost of the U.S. debt. The maturing batch came with a median yield of 0.215 percent; today's auction added an annualized $1.648 billion to the cost of the debt. This number was big enough to hike the estimated average annual interest rate on the current U.S. debt to 2.12 percent. This rate was estimated at 1.87 percent at the beginning of this fiscal year.

Only modest changes took place on the secondary market for U.S. securities. The inverted yield curve we reported on yesterday remains in place.

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

America's Inverted Yield Curve

 All other things equal, the investors in a nation's sovereign-debt market demand higher returns the more long-term they commit their money. As yields rise with the length of the maturity, the curve that represents the yields slopes upward.

Under exceptional circumstances, the yield curve slopes downward. This can happen for a number of reasons, one being short-term turmoil in the debt market due to fiscal-policy uncertainty; another reason would be pure speculation. 

However, there is a third reason, which is often overlooked in the debate over the yield curve: inflation expectations. Currently, the secondary market for U.S. debt looks as follows (including the last three days' worth of data):

Figure 1

Source: U.S. Treasury

While not perfectly inverted, the current yield curve expresses expectations by investors that inflation will subside over the longer term. The top of the yield curve is in the 6-to-12 month range, suggesting that investors expect inflation to return to more normal levels in 2024. 

Many variables influence the yield on government debt, but inflation expectations are unique in their contribution to an inverted yield curve: from the viewpoint of those expectations, this yield curve is good news. 

America saw a similar phenomenon toward the end stagflation period 40 years ago. 

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

Rising Yields, Falling T/A, at Today's Auctions

 At the 13-week bill auction on Monday, the Treasury sold $60.9 billion worth of debt, up from last week's $60.3 billion but lower than all ten previous auctions. This one attracted $144.9 billion in tender offers, the lowest in eight weeks. The tender-to-accept ratio came out to 2.38, a seven-week low. 

At the 26-week auction, investors offered $136.1 billion for $50.7 billion in accepted debt sales. This came out to a T/A well in line with three of the four previous auctions. 

The yields at these auctions were minor increases over previous auctions. For the 13-week, the yield rose to 4.22 percent from 4.11 two weeks ago and 4.16 last week. The 26-week auction increased the yield by a microscopic 0.01 percentage point, from 4.49 last week to 4.5 this week. 

Both auctions added to the cost of the federal debt:

• The 13-week added an annualized $843 million over the maturing batch of bills;
• The 26-week added an annualized $1.522 billion over the maturing batch.

In both cases, the increases were approximately no size with last week's annualized debt-cost hikes. 

There is a trend of falling tender-accept ratios for the total U.S. debt. As of Monday, the weighted-average T/A stands at 2.232, compared to 2.449 a month ago. A declining T/A ratio indicates that the Treasury is seeing less liquidity in the auction market for its securities. 

Today's auctions nudged the estimated, average interest cost on U.S. debt from last week's 2.10 percent to 2.11 percent. 

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

Average Debt Cost Rises to 2.1 Percent

Treasury auctions on Wednesday covered the 4-week, 8-week, and 17-week bills.  

The 4-week bill attracted $142.2 billion in tender, substantially less than the $167.2 billion from last week and the $174.6 billion from a week before. The Treasury accepted only $56.8 billion, down $10.1 billion from last week. This move maintained the T/A ratio at 2.5, but forced the Treasury to raise the median yield from 3.75 percent to 3.9.

Investors tendered the same amount for the 8-week, with the Treasury accepting $51.6 billion. The accepted amount was similar to the amounts from the last two auctions, but the tender was up from $137.1 last week. The T/A of 2.76 was a jump from 2.42 last week, and is the highest for any active batch of 8-week bills. 

The 17-week bill, which was sold for the sixth time since its introduction, attracted $108 billion in tender offers. This is the highest amount for any 17-week auction. The accepted volume of $34.1 billion is very close to what the Treasury has accepted at all the other auctions of this maturity. The T/A of 3.17 was up modestly from last week's 3.09 and 3.14 the week before.

Notably, the yield on the 17-week crept up to 4.37, the highest on record for this maturity.

For the first time this fiscal year, a Treasury auction resulted in a reduction of the debt cost. The maturing batch of 4-week bills came with an annualized cost of $2.386 billion. Thanks to the much lower debt volume sold in today's auction, the annualized cost for the new batch stopped at $2.215 billion, a reduction of $170 million.

The annualized debt cost at the 8-week auction was $683 million higher than for the maturing batch.

In the secondary market, the most notable event was a spike in the 4-week bill yield, from 3.97 percent yesterday to 4.12 percent. The only other noteworthy change was a drop in the 20-year yield, from 4.05 percent to 3.97 percent. All maturities from 5 years and up now yield below 4 percent in the secondary market. They also yield less there than the median yield at their latest auctions. 

As of November 22, total U.S. debt stands at $31,348.3 billion. The average estimated interest rate on this debt is 2.1 percent.

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

Strange Trend Still Present in Treasury Auction Results

Today the Treasury auctioned the 7-year note. This auction is of particular importance, since this maturity class has the largest share of debt of all maturity classes. As of today, the Treasury owes $3,527.5 billion in 7-year notes, which is equal to an estimated 16.9 percent of the debt held in nominal securities. 

The auction sold $38.8 billion worth of debt, with $85.4 billion in tender offers. The T/A ratio, 2.2, was the lowest in ten months. 

There was a remarkable drop in median yield at the auction: at 3.819 percent, this is the lowest since the 3.09 percent back in August. With this yield drop, the 7-year auction adds to a noteworthy trend in Treasury auctions, where the T/A ratio falls concurrently with the median yield. A lower T/A means that less money is available per dollar of debt the Treasury intends to sell. This, in turn, is a signal of weaker market interest, especially since the Treasury over the past two years habitually sold $40-70 billion worth of 7-year notes per auction. 

If there is weaker market interest in the 7-year, this should be reflected in a rising median yield. However, the opposite happened in today's auction, where the yield declined. While observed only at one auction so far, this phenomenon is nevertheless consistent with a trend observed at other auctions recently. 

The 7-year auction today replaced a $29 billion batch of maturing debt. The annualized increase in debt costs from this auction is $910 million. 

Due to the size of the 7-year bond, and due to minor tweaks to make our forecasting model even more precise, we estimate that as of today, the average interest rate on the debt of the U.S. government is 2.1 percent. This is a return to rising rates after a week's worth of standstill. 

Interest rates in the secondary market for U.S. debt remain stable, with rates ranging from 3.76 percent for the 10-year note to 4.79 percent for the 1-year bill.  

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

Busy Auction Day Adds $5.37bn to Debt Cost

With four auctions, Monday was a busy day for the Treasury. 

The 13-week auction brought in $148.8 billion in tender offers, of which $60.3 was accepted. The 2.47 T/A ratio was up marginally from last week's 2.43, and in line with the past six weeks. The median yield 0f 4.16 percent was a modest increase from last week's 4.11 percent. It was the fourth week in a row with a yield above four percent.

The 13-week auction replaced a batch of $60.1 billion in maturing bills. The annualized cost increased by $1.046 billion.

The 26-week auction sold $50.2 billion worth of debt, for which investors offered $141.6 billion in tender. The T/A came out to 2.82, up noticeably from the 2.64-2.69 of the past three weeks. Median yield landed at 4.49, up from 4.39 last week, and the 7th week in a row above 4 percent.

This auction replaced a batch of $47.4 billion. The annualized cost of this debt increased $1.53 billion.

At the 2-year note auction, the Treasury sold $46.6 billion worth of debt. The $115.6 billion tender made for a T/A of 2.48, generally in line with the T/A ratios of the seven months' auctions. The yield jumped slightly to 4.46 percent, marking November as the third consecutive month where the 2-year note pays more than four percent. 

With this auction, the Treasury replaced a batch of $63.8 billion worth of maturing notes. Despite the new batch being $17.2 billion smaller, the annualized cost for this maturity class increased by $1.754 billion.

In its last auction, the Treasury attracted $107.4 billion in tender offers for $47.7 billion in 5-year notes. The T/A of 2.25 was down from last week, but approximately in line with the past year's monthly auctions. 

This auction replaced a maturing batch of $35.8 billion, which came with a 2.03 percent median yield. The annualized cost increase resulting from today's auction and its 3.899 percent yield, is $1.044 billion. It is worth noting, though, that the yield on the 5-year note is now back below 4 percent, after having been at 4.13 percent at the September auction and 4.119 percent in October. 

The total, annualized increase in the cost of the U.S. debt is $5.374 billion. Despite this, the estimated average interest rate on U.S. debt remains at 2.06 percent, where it has been since November 14.

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

U.S. Fiscal Forecast Weekly Update

 This week's Treasury markets and auctions confirmed that interest rates on U.S. sovereign debt has stabilized around the four-percent mark. Long-term yields declined somewhat, with the 20-year bond dropping at auction from 4.319 percent in October to 4.01 percent. This is the biggest yield drop on record since at least the beginning of FY2023. 

The coming monthly auctions in the maturity spectrum from one to five years will have a major impact on the average cost of the debt. This past week, that average cost has remained steady at 2.06 percent, but prior to that the cost increased by almost 0.01 percentage points per day from November 1 through November 11. Furthermore, from October 14 to November 14, total U.S. debt increased by 0.34 percent, but the annualized interest-rate cost increased by 7.8 percent. 

This sharp discrepancy will not continue, but the cost of the federal debt will continue to rise. We have pointed in the past to the debt-cost shock that is coming, as a result of cheap debt being replaced by more expensive debt.

A nightmarish scenario for Congress would be one where interest rates continue to rise, and therefore push the debt cost further upward. This is unlikely; a more probable scenario is one where rates stabilize in the four-percent vicinity where they are now. However, even as things are now, Congress is looking at a total cost for the U.S. debt over this fiscal year that matches the expected cost of Medicare. 

One reason to believe rates will not go up further, especially not in the short run, is that inflation is now subsiding. We reported previously about consumer price inflation stabilizing; this week saw a sharp drop in producer-price inflation:

Figure 1

Source of raw data: Bureau of Labor Statistics

As a general rule, changes in producer prices precede changes in consumer prices by two months. The top in consumer-price inflation in June can be explained by the stabilization of producer-price inflation in the spring. The drop in PPI inflation since June will therefore translate into declining CPI inflation into the first quarter of 2023.

With inflation subsiding, there is less pressure on real interest rates. This, in turn, shifts the balance in credit markets back toward lenders; when real interest rates are negative, debtors are the relative winners vs. creditors. That is not a sustainable situation over time, but can—if protracted—cause a financial crisis. We have not seen a tendency toward that during this inflation episode, but the Savings and Loans crisis in the 1980s could in part be traced back to the stagflation years in the late 1970s and early 1980s. Therefore, it is very good news that we can expect real interest rates to improve in the coming months. 

There is one factor that may weaken the positive effects of subsiding inflation. The U.S. dollar rally vs. European currencies that began in the spring, has come to an end. There is a fair chance that the dollar will weaken in coming months, especially against the euro, the sterling, and the Swiss franc. If so, import prices are going to push upward, which would include oil prices. While the effect on oil prices on U.S. inflation is limited (though not insignificant), it still has the potential of watering down the positive effects from the inflation trend reported above.

Looking at the next six months, the case for a weaker dollar is stronger than the case for further appreciation. Substantial amounts of foreign money has been invested in U.S. markets during 2022, and many investors may want to cash in on those profits. The combination of higher interest rates in the sovereign-debt market and a rising dollar vs. their home currency, can make for substantial gains.

However, if the dollar does weaken, the investor cash-in effect will not be substantial. The major worry is if Congress does not take a proactive position on its rising debt costs. If the projected interest-rate payments on the U.S. debt run high enough to become the second-costliest item in the budget (a realistic scenario), and if Congress is perceived as reacting with panic or indifference—both of which would be equally bad—then the debt market can take this as a signal that the legislators are not going to prevent a possible debt default. 

If we get to this point, we will see both market and auction yields on U.S. debt rise toward ten percent. That would be a highly unstable situation from an economic, political and social viewpoint, especially on the heels of our current inflation episode.

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

Treasury Yields Remain Stable

 On Thursday, the Treasury held its weekly auctions for its shortest-maturity securities. The 4-week sold $66.9 billion, tendering $167.2 billion for a T/A of 2.5. While the tender-accept ratio was stable from previous weeks (2.6, 2.49 and 2.43), the median yield increased from last week's 3.53 percent to 3.75 percent. 

The 8-week auction sold $56.6 billion worth of debt. At a T/A of 2.42, total tender amounted to #137.1 billion. This T/A was a notable drop from 2.62 last week and 2.7 the week before. The tender amount is the lowest in six weeks, while the yield of 3.965 percent is the highest of all active batches under this maturity. 

Yields in the secondary market remained stable, with only minor increases:

Table 1

Source: U.S. Treasury

Structurally, market yields and auction yields have coalesced roughly around the four-percent level, where we predict they will remain for now. 

The stabilization of auction yields has slowed down the increase in the average interest rate on total U.S. debt. After having increased from 1.87 percent on October 1 to 2.06 percent on November 14, the average yield has remained constant for a week now. We expect it to rise when the maturities of 26-week bills up to 5-year notes come up for auction again in the next four weeks.

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

Long Treasury Yields Decline

In Wednesday's market trade, yields on long-term Treasury securities dropped across the line. Every note and bond came out of today's market with a lower yield than yesterday. Furthermore, the trend of market yields below auction yields is reinforced; the column farthest to the right reports the market yield per 100 points of yield at the latest auction:

Table 1

Source: U.S. Treasury

The drop in the 20-year yield coincides with the bond being sold at auction this morning for a yield that was substantially lower than at the October auction. 

In its daily updates on the U.S. debt, the Treasury reports that as of November 15, the federal government owes $31,288.2 billion. Our model estimates the average interest rate on this debt to be 2.06 percent.

On November 14, the total U.S. debt had increased by 0.34 percent in one month. During the same period of time, the estimated annualized interest cost on the same debt rose by 7.8 percent. The rate cost will continue to rise in the coming months, but more slowly.

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

Yield Drop at 20-Year Bond Auction

Wednesday, the Treasury auctioned off a new batch of 17-week bills and one under the 20-year bond. The 17-week attracted $104.9 billion in tender offers, of which the Treasury accepted $34 billion. The 3.09 T/A was a drop from last week's 3.14 but almost exactly equal to the 3.08 of two weeks ago. 

The 17-week auction produced a median yield of 4.275 percent, up marginally from 4.25 percent in the last two weeks. In yesterday's secondary-market trade, the same Treasury bill sold at 4.4 percent.

A total of $16.6 billion was accepted by the Treasury out of $41.2 billion tendered for this month's 20-year bond auction. The 2.48 T/A is down marginally from 2.5 in October and 2.66 in September.

The big news here is that the yield dropped from last month's 4.319 percent to 4.01. Yesterday, the 20-year sold at 4.2 percent in the secondary market, and 4.28 percent the day before. 

We maintain our assessment that bond yields have stabilized in the 4-percent neighborhood, and that they will remain there for the near future.

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory. 

More Treasury Market Yields Below Auctions

There were no Treasury auctions scheduled for Tuesday. Secondary-market rates stayed largely unchanged, though a drop in the yield on the 7-year note from 3.95 percent to 3.88, brought its yield down below the most recent auction yield of 3.95 percent. This means that the current market yield for all maturities from 2 years and up are now below auction yields. 

The largest positive differences between market and auction yields are for 1-month (6.8 points excess market yield) and 2-month bills (7.33 points excess yield). In the opposite direction, the largest negative difference is for the 3-year note (-8.15 points) and the 10-year (-6.03 points).

As of November 14, total U.S. debt stood at $31,255.3 billion. At an average 2.06 percent yield, this debt currently costs Congress an annual $642.7 billion. This is a static figure, not counting changes in debt composition or interest rates, or the addition of more debt.

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

As Debt Costs Rise, Treasury Plays Defense

 Today's Treasury market again produced only modest changes in rates. Yields on the secondary market and at auctions are closer than they have been at any point since the start of this fiscal year; as the right-most column in Table 1 indicates, the market yields for four maturity classes—3-year, 5-year, 10-year, and 20-year—are below their last auction yields:

Table 1

Source of raw data: U.S. Treasury

Over the past four weeks we have noted a trend in the composition of the U.S. debt, where more of it is held in short-term securities. Treasury bills, which mature in one year or less, on Monday represented an estimated 16.01 percent of total debt, compared to an estimated 15.07 percent on October 12. The share of bonds, with 20- and 30-year maturities, has remained almost exactly the same, while notes, maturing in 2-10 years, have declined from 67.14 percent to 66.25 percent. 

One option, though unlikely, is that this observed shift is due to the configuration of our model. During the time period mentioned, our model has expanded from covering 65.72 percent of all U.S. debt, to covering 66.44 percent. If this change had added short-term debt not previously covered, it would have been valid to explain the change in debt composition by a model anomaly. 

However, our model covers completely all outstanding debt with a maturity 10 years or less; due to shortages in Treasury-provided data, we only cover a portion of the outstanding stock of Treasury bonds. We expand coverage of the bond-maturity segment on a month-to-month basis. Therefore, if anything, our model is skewed to under-estimates the aforementioned trend toward shorter-maturity debt.

A more likely explanation of the shift in maturity composition is that the U.S. Treasury is selling more debt under short maturities to as a quick-fix response to the Federal Reserve's termination of its QE programs. In other words, the Treasury is playing defense in its management of the federal government's debt stock.

As of Thursday, November 10, total U.S. debt amounted to $31,252 billion. By November 1, the amount was $31,211.7 billion. That amount, in turn, was a 0.9 percent increase from October 1. 

Over the same period of time, the estimated annual interest-rate cost for said debt increased by 7.7 percent, in other words, more than eight times faster than the increase in debt. 

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

Big Rise in Treasury Debt Cost

 On Monday the Treasury auctioned one batch of 13-week bills and one batch under the 26-week maturity. The 13-week attracted $157.5 billion in tender offers, of which the Treasury accepted $64.8 billion. The 2.34 T/A ratio was a notable drop from 2.54 last week, but well in line with the 2.37 average for the three previous weeks. 

The 26-week auction sold $51.1 billion worth of debt, for which investors tendered $134.9 billion. The 2.64 T/A aligns well with last week's 2.69 and the 2.68 from two weeks ago. 

There was little movement in yields, with the 13-week paying a median of 4.11 percent, up modestly from last week's 4.065 percent and 4.02 percent two weeks ago. In Thursday's market trade (no trade on Friday) the 13-week sold at 4.28 percent, which was average for last week. 

The 26-week auction landed a median yield of 4.39 percent, which is down from last week's 4.45 percent and 4.405 percent from two weeks ago. In last week's secondary-market trade, this bill sold at 4.52-4.62 percent, with a weak downward trend and the lowest yield being recorded on Thursday. 

Both these auctions confirm that bond-yield rates have stabilized. 

According to our model, as of today the U.S. government pays an average of 2.06 percent on its debt. On October 1, the beginning of this fiscal year, the average rate was 1.87 percent. This increase, together with the rise in total debt thus far this fiscal year, has raised the expected cost of the debt by $57.3 billion. This is a static estimate, under the assumptions that for the remainder of the fiscal year the debt would not rise further, and that 2.06 percent will be the average rate going forward. 

A dynamic estimate will be provided later in the week.

Today's two auctions replaced maturing batches of debt that cost the Treasury 2.565 percent (13wk) and 1.45 percent (26wk). The total, annualized debt-cost increase from today's auctions is $2.54 billion. This is the amount by which the Treasury's debt costs will increase for FY2023, given that the yields on these two bills remain unchanged at coming auctions, and that auctioned batches replace exactly the debt value of the maturing batches. 

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

U.S. Fiscal Forecast Weekly Update

Two things dominated the Treasury auctions and secondary markets this week. The first was the reversal of the trend of rising yields. It started with clear signs of stability in the market, with weaker upward pull from the secondary market on auction yields. 

Some maturities auctioning at lower yields this week than at previous auctions. On Thursday, this upended the relationship between auction and market yields. For several maturities, market yields are now lower than their last auction yields, which could indicate modest reductions in yields at coming auctions. If this holds over time, it is good news for the Treasury, but even if it doesn't, this reinforces the trend we have been pointing to, namely that yields on the U.S. debt are stabilizing.

Stabilizing interest rates is a sign of growing investor interest in U.S. sovereign debt. One reason is the slow but continued drop in inflation. High inflation lowers real interest rates, eventually flipping them negative, which benefits debtors over creditors. This forces investors to pursue higher-yield opportunities, driving the Treasury to raise interest rates in indirect response to inflation. Now that we have four months in a row with declining inflation, it is only reasonable that the real-rate pressure on Treasury yields also weakens.

Continuing increases in inflation in Europe could reinforce this trend, as investors see a combination of improving returns on low-risk U.S. Treasury securities and the dollar strengthening from lower inflation.

While it is good news that interest rates seem to be reaching their peak, there is still bad news out there for the Treasury. Which brings us to the second big news from the Treasury auctions and markets this week: the rising cost of debt rollover.

The U.S. Treasury currently sits on a total of $2.5 trillion that:

• Matures in the next 12 months, 
• Is of all maturities 10 years and less, and
• Costs the Treasury one percent or less in interest.

If this debt is rolled over into new debt at four percent interest—a likely rate today—and if this rate prevails throughout the fiscal year as short-term debt continues to roll over, then Congress will have to appropriate another $87 billion per year, just to pay for the increase in interest on these $2.5 trillion.

This is just the cost for the cheapest segment of the federal debt. As an example of how rapidly the cost of this debt is rising currently, on Wednesday the Treasury sold $47.3 billion in 10-year notes. It replaced a batch of $24 billion in maturing debt, on which the Treasury paid 1.63 percent interest. The newly auctioned volume costs a median yield of 4.044 percent. 

In other words, this auction alone increased the annualized cost of the federal debt by approximately $1.5 billion. In total, auctions this week raised the annualized cost of the debt by $4 billion.

Let us note what the term "annualized" means: it is an estimate of what the increase in debt at a given auction would cost the Treasury, should the median yield from the auction remain unchanged in coming auctions for the rest of the fiscal year. 

With this in mind, it is important to note how serious this trend in rising debt costs is, and what few options there are for it to come to an end:

a) The Treasury starts paying down the debt; 

b) There is unprecedented interest in U.S. debt from investors; or

c) The Federal Reserve reverses its current monetary policy.

Alternative c is highly unlikely, given the unanimity of the Federal Open Market Committee behind the current policy. Alternative b is more likely, but not with the same force as we are seeing currently. The reason for this is simple: if the U.S. economy goes into a recession—even a mild one—it will negatively affect the currency. A weakening of the dollar eats into the gains of foreign investors, giving them pause before putting more money into the U.S. debt market.

Alternative a is the most likely route to bring about a decline in auction and market yields. Yields may still remain stable even in lieu of debt paydown efforts, but if they only remain stable around the four-percent level, our forecast of sharply rising debt service costs remains valid.

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory. 

Sharp Drop in Treasury Market Yields

As we mentioned earlier, today's Treasury auctions signaled a new phase of stability in interest rates on U.S. debt. Today's market yields confirm this, with rates on some maturities dropping back under four percent. 

For all maturity classes from 2 years to 20 years, the current market yield is lower than the latest auction yield. Technically, this means that the market yield pays less than $100 for every $100 an investor can earn under the latest auction yield. 

In the case of the 3-year note, the current market yield pays $91.85 for every $100 from the auction yield. The yield on the 10-year note is $94.46 to $100:

Figure 1

Source: U.S. Treasury

The drop in market yields not only confirms the trend of stabilizing yields we have been reporting on, but is also good news for Congress. If rates do indeed stabilize, the rise in debt costs from debt replacement—the sales of new debt to replace maturing debt—would now come with a cap. 

This does not mean that the debt cost will stop rising: as we partly covered earlier in the week, there is $2.5 trillion worth of debt maturing in the next 12 months that currently costs less than one percent per year. If this debt is rolled over at four percent per year, the annual interest payments on that debt will rise by $87 billion.

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

Treasury Yields Signal Interest Rate Stability

The stabilization of interest rates in the secondary market for Treasury securities, is now beginning to affect auction yields. The median yields at today's 4- and 8-week bill auctions dropped from last week. 

The 4-week auction attracted $174.6 billion in tender offers, with $67.2 billion accepted. The accept volume is stable, while the tender volume is up. The T/A came out to 2.6, the highest recorded in several weeks.

With a median yield of 3.53 percent, this week landed below last week's 3.56 percent and the 3.55 percent from two weeks ago. 

Investors made tender offers of $149.1 billion for the 8-week bills, of which $56.9 billion was accepted. The 2.62 T/A ratio is down from last week's 2.70 but equal to that from two weeks ago. The batches from the last three weeks have the highest T/A's of all active 8-week bills. 

The median yield for the 8-week came out to 3.82 percent, which is down from 3.845 percent last week and only marginally higher than 3.78 percent from two weeks ago. 

Yesterday the 4-week bill sold at a market yield of 3.65 percent, with the 8-week at 4.05 percent.

In addition to its shortest-term bills, the Treasury also auctioned its 30-year bond today. Attracting $58.2 billion in tender, the Treasury accepted $28.4 billion, for a T/A of 2.05. This is lower than 2.39 a month ago and 2.42 in September. However, as with the 10-year note and the 20-year bond, the 30-year runs in a three-tier cycle, where every third auction sells bona fide 30-year bonds, every third sells 29-year, 11-month bonds and every third 29-year, 10-month bonds. This system causes some variations in T/A rates and yields, but not enough to upset the long-term trend. 

Looking exclusively at full 30-year bonds, the T/A has been below 2.00 for two years. The two shorter versions of this bond have also exhibited rising T/A ratios over the past year. 

Yesterday we predicted that the 30-year will land a median auction yield of at least 4.1 percent. It came out to 4 percent flat, up from 3.85 last month (29y/10m), 3.45 in September (29/11) and 3.019 in August (30). The lower-than-expected rise in the yield keeps the 30-year below its current market rate of 4.31 from yesterday.

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

U.S. Inflation Ratchets Down

Consumer-price inflation, measured as the Consumer Price Index by the Bureau of Labor Statistics, was 7.75 percent in October (not seasonally adjusted). This is down from 8.2 percent in September, 8.26 percent in August, and 8.52 percent in July. The top for the inflation curve was 9.06 percent in June, which in turn was the highest one-month inflation rate since November 1981. 

Inflation in consumer prices for 2022 remains above its 2021 levels, although as Figure 1 reports, the difference is diminishing:

Figure 1

Source of raw data: Bureau of Labor Statistics

The Consumer Price Index measures inflation in consumer prices on a year-to-year basis. An alternative measure tracks price increases—using the same index—on a year-to-date basis. Figure 2 reports CPI for the U.S. economy starting in January, respectively for 2021 and 2022:

Figure 1

Source of raw data: Bureau of Labor Statistics

On Tuesday November 15, the BLS releases its Producer Price Index for October. 

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

Weaker Upward Pull From Treasury Market Yields

On Wednesday, Treasury yields in the secondary market again showed signs of stability. Figure 1 reports the latest auction yields for respective maturity class, compared with market yields from Wednesday (today) and Tuesday (last day):

Table 1

Source: U.S. Treasury

The secondary market no longer exercises the same pull on auction yields as they have for the past several weeks. In the case of the 3-year note, which was auctioned on Tuesday, the auction yield is actually higher than the latest market yield. 

Only one maturity class exhibits significantly higher market yields than auction yields: the 30-year bond. That is likely to change: we predict the median auction yield for the 30-year to exceed 4.1 percent at Thursday's auction.

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

Ten-Year Treasury Auctions Above 4 Percent

 The U.S. Treasury held two auctions today, the first of which sold $34.1 billion worth of 17-week bills. They tendered $107.2 billion, for a T/A of 3.14. This is a high tender-to-accept ratio compared to other short-maturity bills: the 13-week auction on November 7 produced a T/A of 2.54, while the 26-week from the same day came out at 2.69.

The 17-week auction landed a median yield of 4.25 percent, identical to last week's auction. Since the 17-week is a new bill under which no batch has yet matured, the annualized fiscal cost of this bill's auctions is $1.45 billion. Since these bills only run for 17 weeks, and therefore will be replaced twice over the next 12 months, the actual annual cost of this slice of U.S. government debt is uncertain. However, under the assumption that the 4.25 percent from today's auction will remain unchanged, this auction added $1.45 billion to the annual fiscal cost of the debt.

The other auction was for the 10-year note. Tendering $90.5 billion, for an accepted volume of $47.3 billion, it landed a T/A of 1.91. Last month's auction ended with a T/A of 2.34, but it is important to note that only one in three 10-year note auctions are actually for 10-year maturities. In a recurring pattern, every third one is for 9 years, 11 months, and every third one is for 9 years, 10 months. These two tend to draw a bit more money per accepted dollar. 

The median yield at the auction came out at 4.044 percent close to its 4.14 percent at secondary-market trade yesterday. This is the only batch of 10-year notes currently active, which yields more than 4 percent. This yield is significantly higher than the 1.63 percent on the batch that just matured. That, and the almost-doubled accepted volume at today's auction ($47.3bn compared to $24bn), increases the annual fiscal cost of this batch of 10-year notes from $390 million to $1.91 billion.

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

A Debt-Cost Shock Forecast

Yields on almost every Treasury maturity declined in Election Day trade. The biggest drop was for the 7-year, with a 0.09-point decline from 4.31 percent yesterday to 4.22 percent. the 3- and 5-year notes and the 20-year bond dropped by 0.08 percent. The 2- and 4-month bills stood still.

After today's 3-year note auction, the estimated average interest rate on U.S. debt is now at 2.03 percent. This is up from 1.87 percent at the start of the fiscal year. 

The average debt cost rises by approximately 0.01 percentage points per day. Today's Treasury auction on 3-year notes added $1.5 billion to the annual fiscal cost of the debt. 

This debt-increase cost will only accelerate. Currently, the U.S. government has $.75 trillion debt for which is pays less than one percent in interest. The average estimated interest on this portion of its debt is 0.442 percent. Of this sub-1 percent debt, $1.64 trillion matures within the next 12 months. Currently, this portion of the sub-1 percent debt costs the federal government $3.34 billion per year.

If this debt was replaced at four percent—a realistic assumption—the cost would increase to $65 billion per year. This estimate includes only U.S. debt sold at less than 1 percent median yield, and only that which matures within 12 months. 

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

Three-Year Treasury Auction Hikes Debt Cost by $1.5 Billion

The Treasury auction on Tuesday for 3-year notes attracted $116.8 billion in tender, with $54 billion accepted. T/A came out to 2/16 notably down from 2.57 a month ago and 2.49 in September. It is below most of the 3-year note auctions this year. 

Median yield rose to 4.54 percent, up from 4.24 percent last month and 3.5 percent in September.

The maturing batch of 3-year notes, which today's auction replaced, accepted $56 billion at auction, out of $116.6 billion tendered, for a T/A of 2.08. The yield was 1.6 percent, which would turn out to be the highest median auction yield in 26 months. 

The maturing batch cost U.S. taxpayers $896 million per year in interest payments. This new one will cost $2.45 billion per year, an increase in debt cost of just over $1.5 billion.

Before today's auction, the total amount of debt under the 3-year note was $2,161 billion at an auction yield of 1.03 percent. The new total debt amount under the 3-year note is $2,159 billion, at 1.1 percent per year.

The drop in the T/A ratio at today's auction caused the average estimated T/A for the entire U.S. debt to drop from 2.47, where it has been since November 1, to 2.435. This is not a dramatic change, but noteworthy: a trend of declining T/A is a sign of liquidity stress in the sovereign-debt market.  

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

Treasury Market Rates Remain Stable

The interest rates in the secondary market for Treasury securities have moved only modestly in the past eight trading days. Today, Monday November 7, was no exception:

Table 1

Source: U.S. Treasury

The trend is still upward from the last auction for all maturity classes, but that trend is weakening. The strongest upward pressure is in the 30-year bond, which is being auctioned on Thursday. We expect the median yield at the auction to land north of 4.1 percent. 

Another noteworthy auction is the 10-year note, scheduled for Wednesday. The maturing batch of this note is worth $24 billion and sold at a median yield of 1.63 percent. The annual fiscal cost of this batch was $391 million. With the latest auction yield at 3.85 percent and current market yields running at approximately 4.2 percent, we expect the Wednesday auction to produce a yield in the 4.0-4.1 percent range. 

At four percent flat, and an accepted volume identical to the $32 billion from the last two 10-year auctions, the annual fiscal cost of this new batch would be $1.28 billion. This would in other words raise the fiscal cost of the replaced batch by the increased interest rate, equal to $569 million, plus the cost of an extra $8 billion borrowed. The total increase in the fiscal cost would therefore be $889 million.

Again, this is an experiment to illustrate the trend in the fiscal cost of the federal debt. The actual numbers will be known on Wednesday.

As of today, the average interest rate on the national debt, per our model, is an estimated 2.02 percent. This is up from 1.87 percent at the start of the current fiscal year. 

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

Another $1bn Added to U.S. Debt Cost

Monday Treasury auctions sold $63.9 billion worth of 13-week bills and $50.4 billion worth of 26-week bills. 

The 13-week tendered $162 billion for a T/A of 2.54. The median yield stopped at 4.065 percent. Last week, the 13-week bill raised $65.8 billion for the federal government, attracted $157 billion in tender offers and yielded 4.02 percent at the median. 

The T/A for today's auction is the highest in ten weeks. The yield at the auction ten weeks ago was 2.94 percent, which illustrates the precipitous rise in interest rates in recent weeks and months. This rise is even more pronounced when today's auction is compared to the batch of 13-week bills that it replaced. The maturing batch sold an accepted $60.5 billion ($159.9bn tender with T/A=2.54) at a median yield of 2.54 percent. 

The annualized interest cost of the newly auctioned batch of 13-week bills is $1.07 billion higher than the matured batch. Adjusted for maturity, this batch adds $267.5 million to the federal government's total annual debt cost.

At the 26-week auction, investors tendered $135.6 billion, of which the Treasury accepted $50.4 billion. With a T/A 2.69, this auction was largely in line with where the last eight weekly auctions have been. 

The yield of 4.45 percent was up marginally from last week's 4.405 percent, and the fifth 26-week auction in a row with a yield in excess of four percent. 

The maturing batch of 26-week bills was sold at a median yield of 1.34 percent. The accepted $47.8 billion thus carried an annualized cost of $641 million in interest payments. Today's auctioned batch carries an annualized cost of $2.243 billion. Adjusted for the maturity, this means that today's auction added $800 million to the federal debt cost. 

The actual fiscal cost of the yield increases in today's auctions amounts to $1.068 billion. This is the amount that Congress has to appropriate in order to cover for the higher interest costs from these two auctions. 

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

U.S. Fiscal Forecast Weekly Update

This week saw another Federal Reserve rate hike, which did not have much of an impact on Treasury yields. If anything, the rate hike could have contributed to the stabilization of yields in the secondary market; there is not enough data yet to assess its impact on auction yields. However, the stabilization of market yields indicates that investors are satisfied with the current rates of return. Given the overall safety of owning U.S. government debt, this should be reassuring in terms of funding the debt—at least for now. 

Despite the tentatively good news that interest rates may have reached their peak, the increase in the debt itself continues. In one day, on November 1, the Treasury auctions added $1.7 billion to the cost of the federal debt. 

This increase, while discrete in nature, is never the less symptomatic of a trend where cheap debt is being replaced with expensive debt. This is part of the reason why, on November 1, we published a dire prediction of the federal debt cost for this fiscal year. One part of the forecast is static, the other dynamic. According to the dynamic forecast, the cost of maintaining the debt will exceed the predicted cost of our national defense for FY2023. Interest payments on the debt will be within the margin of error of exceeding the total Medicare budget for the same fiscal year. 

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

Emerging Stability in Treasury Yields

The market for Treasury securities kept yields largely unchanged in Thursday's trade. They are only modestly higher than the average for the last week of October. Given that the bill auctions this morning resulted in very small yield movements, we conclude that the tendencies toward interest-rate stabilization that we reported a week ago appear to have been correct.

Figure 1 reports the yields from November 3, comparing them to the yields from the same day one year ago (red). The 4-month bill was not traded at that time:

Figure 1

Source: U.S. Treasury 

As of November 2, total U.S. debt amounted to $31,221.8 billion. At the average interest rate estimated by our model, the static fiscal cost of this debt amounts to $627.1 billion.

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

Fed Rate Hike Has No Impact on Treasury Auctions

The Federal Reserve's increase in the federal-funds rate by 0.75 points now puts the rate band at 3.75-4 percent. The effective rate is the middle of the band, 3.83 percent. 

This rise was not at all reflected in the auction yields this morning, where the 4-week Treasury bill sold at 3.56 percent, and the 8-week at 3.845 percent. The 4-week yield is almost identical to last week's, up microscopically from 3.55 percent. The 8-week yield is up from 3.78 percent last week. This is the smallest yield hike in at least four weeks for this maturity class.

Both auctions raised their T/A ratios: 

• The 4-week bill tendered $166.1 billion, accepting $66.8 billion for a T/A of 2.49, up from 2.43 last week and 2.31 two weeks ago;
• The 8-week bill tendered $152.7 billion, accepting $56.5 billion for a T/A of 2.7, up from 2.62 last week, 2.52 two weeks ago and 2.42 three weeks ago. 

Notably, the volume accepted in both auctions are higher than the volume replaced: the expiring batch of 4-week bills was worth $52.2 billion at auction, while the expiring 8-week batch was worth $47.1 billion. 

This is contradictory to the policy that the Treasury ought to be pursuing, namely to shift more of its debt toward long-term securities. In total, Treasury bills currently account for an estimated 15.8 percent of total debt, up from 15.1-15.2 percent mid-October. 

Due to the rising volume of debt under the shortest maturities, our model estimates that the average interest rate on the total U.S. debt is currently 2.01 percent. This up from 1.87 percent a month ago. 

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

Higher Yield on 4-Month Bill

On Wednesday the Treasury held its third weekly auction for the 4-month (17-week) bill. The auction tendered $104.5 billion and accepted $33.9 billion for a T/A of 3.08. The yield climbed to 4.25 percent, up from last week's 4.15 and 4.1 two weeks ago.

The T/A ratio is markedly higher than the 2.86 and 2.88 from the past two weeks. This likely means nothing in particular, given that the bills under this maturity are new by comparison. There is such a small volume of 4-month bills available in the market, that investor preferences are easily exaggerated in the numbers. 

Today's auction had no impact on the average interest rate on the U.S. debt, which according to our model remains at 2.00 percent.   

There were only minor movements in market yields, with the biggest change being the yield on the 2-year note rising from 4.54 percent to 4.61 percent. the 20-year bond rose to 4.41 percent from 4.37, and the 4-month bill from 4.35 percent to 4.38.

Market yields for all maturities remain modestly higher than median yields at auctions. 

The U.S. Treasury's latest estimate of the federal debt at $31.211.7 billion.

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

A Forecast of Total U.S. Debt Cost for FY2023

 Following the sharp rise in median yields at today's Treasury auction for the 1-year bill, its yield rose modestly in today's market auction: from 4.66 percent yesterday to 4.75 percent today. This means that the market pays $106.74 in yield for every $100 earned at the auction. This disparity is higher than yesterday, when it stood at 104.72:100, but significantly smaller than it was in the week of October 18-25, when the yield disparity averaged 117.9. 

Overall, there was very little movement in market yields on Tuesday:

Table 1

Source: U.S. Treasury

Based on our forecasting model for the U.S. debt, we make the following predictions of the cost of the debt for the entire FY2023:

• Static prediction, $624.7 billion;
• Dynamic prediction, $841.9 billion.

Both predictions are based on a sample of the U.S. debt equal to 65.95 percent of total debt. The static prediction is based on the following assumptions: the current average interest rate on all U.S. debt stays unchanged at exactly 2.00 percent; and the debt does not increase beyond $31,239.2 billion. The dynamic prediction is based on the assumptions that the rise in debt and in the average interest-rate cost of that debt in October, accurately predict the rise in the debt as well as the interest-rate cost for the remainder of FY2023.

Both forecasts are meant to predict the fiscal impact of the U.S. debt, not financial yields to creditors of the U.S. government.

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.

Treasury Auction Adds $1.7 Billion in Federal Outlays

 Tuesday's 1-year Treasury bill auction attracted $101.6 billion in tender offers, of which the Treasury accepted $39.3 billion. The T/A ratio ticked up a tenth from last month, landing at 2.59. This is notably lower than the previous ten auctions, when the T/A has exceeded 2.6; as recently as in March, the 1-year bill sold at a T/A of 3.05. 

The median yield at today's auction stopped at 4.45 percent, which is a substantial jump from 3.895 percent on October 4.

This auction replaced $36.7 billion accepted at the November 2021 auction. The median yield at that auction was 0.215 percent, which put the annual cost of debt for this batch of 1-year bills at $83.2 million. The new batch, sold today, will cost $1.75 billion over the next year. 

This is an increase of nearly $1.7 billion in federal-government outlays for the next year. 

With today's auction, our model estimates the average interest rate on the federal debt to now be two percent exactly. The trend from the latter half of October continues, where this estimated rate rises by 0.01 percent per day. 

Dramatic as it is, the rise in the median yield at today's auction does not precipitate any significant increase in the market yield on the 1-year bill. Today's auction yield is only an adjustment to the rate set at the secondary market, which has been least 4.5 percent since October 14.

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.