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.