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.