There were no auctions on Monday, nor was there any secondary-market trade. However, on Tuesday the Treasury sold debt under four maturity classes: 13-week, 26-week, and 1-year bills, and 2-year notes.
Tuesday's auctions sold a total of $192.81 billion in debt, distributed as follows:
- 13-week: $61.15 billion, which tendered $135.57 billion for a T/A=2.22;
- 26-week: $50.96 billion, which tendered $121.32 billion for a T/A=2.38;
- 52-week: $38.5 billion, which tendered $114.81 billion for a T/A=2.98; and
- 2-year: $42 billion, which tendered $113.96 billion for a T/A=2.71.
The median yield was as follows, with the maturing batch in parentheses, followed by last auction:
- 13-week: 4.255 (3.22) 4.2;
- 26-week: 4.52 (2.45) 4.5;
- 52-week: 4.5 (0.37) 4.52; and
- 2-year: 4.317 (0.11) 4.46.
Especially the last three auctions illustrate the debt cost rollover problem. The 2-year auction sold a smaller amount of debt than the maturing batch, $42 billion compared to $66.8 billion, yet the annualized cost of the yield on this new batch is $1.74 billion higher than the maturing one. This is, of course, exclusively attributable to the sharp rise in interest at this auction.
The 52-week auction raised the annualized debt cost by $1.592 billion. Since the new debt sold was almost equal to the maturing batch—only $400 million more—this significant rise in the debt cost stems entirely from the yield rise.
Even the 26-week auction increased the annualized debt cost by more than $1 billion. The maturing batch of $49.6 billion was replaced by a batch of $50.96 billion; with an interest rise from 2.45 to 4.52 percent, the debt cost rose by an annualized $1.088 billion.
Notably, even the 13-week auction contributed a higher debt cost. The Treasury sold $61.15 billion to replace $60.9 billion, with the yield rising from 3.22 percent to 4.255 percent. The fallout was $641 million in higher annualized debt cost.
All in all, today's Treasury auctions sent Congress a bill for an extra $5.06 billion in higher annualized debt cost.
By reducing the debt under the two longer maturity classes and slightly increasing it under the shorter two, the Treasury followed its already-visible policy of slightly shifting debt over in the direction of shorter maturities. As of today, Treasury bills with a maturity up to 52 weeks, account for an estimated 16.47 percent of the U.S. debt. Notes, which mature in 2-10 years, are still the backbone of the debt, but their share is now down to 65.7 percent; it was 67.1 percent in mid-October.
The 20- and 30-year bonds make up the remaining 17.83 percent of the debt.
Due to the rollover effect under the longer maturities auctioned today, the estimated average interest rate on the U.S. debt rose from 2.17 percent to 2.2 percent. On Monday we will publish another dynamic estimate of the total cost of the U.S. debt for this fiscal year; our last estimate, from the turn of the month, suggested a cost in excess of $1 trillion.
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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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