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.
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