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.
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