Debt Rollover Sharply Raises Debt Cost

It was a big day for Treasury auctions on Monday.  

• 13-week bill: $140.36 billion tendered, $58.7 billion accepted, T/A=2.39; median yield 4.19 percent;
• 26-week bill: $123.73 billion tendered, $48.9 billion accepted, T/A=2.53; median yield 4.56 percent;
• 3-year note: $102.06 billion tendered, $40 billion accepted, T/A=2.55; median yield 4.03 percent;
• 10-year note: $74 billion tendered, $32 billion accepted, T/A=2.31; median yield 3.535 percent.

All in all, the Treasury sold $179.8 billion in new debt. These new securities replaced $164.4 billion in maturing debt.

The yields increased across the board: 

• On the 10-year, from 1.634 percent to 3.535 percent;
• On the 3-year, from 1.6 percent to 4.03 percent;
• On the 6-month, from 2.13 percent to 4.56 percent; and
• On the 3-month, from 3.03 percent to 4.19 percent.

As a result, the annualized increase in the debt cost amounts to $3.91 billion; this number is valid under the assumption that the 3- and 6-month bills are rolled over at future auctions for the same amount of debt and at the same median yield.

Adjusted for maturities, the rise in the debt cost stands at $2.833 billion.

Either way, today's auctions illustrate the powerful effect on the debt cost from debt rollover. It is worth noting that the debt cost rose by this much despite the fact that auction yields actually fell for three of the maturity classes:

• For the 10-year, from 4.044 percent last month and 3.85 percent two months ago, to 3.535;
• For the 3-year, from 4.54 percent last month and 4.24 percent two months ago, to 4.03; and
• For the 3-month, from 4.205 percent last week and 4.22 percent two weeks ago, to 4.19.

The only exception was the 6-month, where the median yield last week and two weeks ago was, respectively, 4.49 percent and 4.5 percent. This week's auction landed at 4.56 percent. 

Due to the rollover effect, the average estimated interest rate on the U.S. debt rose today, from 2.14 percent last Friday to 2.15 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.