Treasury Yields Fall Across the Board

Treasury yields fell across the maturity spectrum on Wednesday:

Table 1

Source: U.S. Treasury 

These drops in secondary-market yields compounds a trend we have been pointing to since the end of November, namely that interest rates have reached a top, at least for now. 

Adding to this impression is the median yield from Wednesday's 17-week bill auction: at 4.35 percent, it was the lowest yield for this maturity class in four weeks. The auction sold $34.1 billion worth of debt, which attracted $89 billion in tender, for a T/A of 2.61.

Notably, the T/A is the lowest on record since the 17-week bill was first auctioned eight weeks ago. Last week's T/A was 3.05, in turn a drop from the 3.17 a week earlier. 

A decline in the Tender-to-Accept ratio suggests a weaker investor interest in the debt offered. If this lower interest is due to pessimism among investors, it will force the Treasury to raise the yield in order to sell the debt. As mentioned, that was not the case here, suggesting that investors bought up the offered 17-week bills in short order, and with confidence.

As of December 6, total U.S. debt stood at $31,338.55 billion. According to our model, the average interest rate on this debt is 2.14 percent. The debt is spread as follows (numbers from October 12 in parentheses):

Bills, maturity from 4 weeks to 1 year: 16.36 (15.70) percent;

Notes, maturity from 2 to 10 years: 65.92 (66.57) percent;

Bonds, maturity of 20 or 30 years: 17.73 (17.72) percent. 

Given that the United States currently operates with an inverted yield curve, it would be rational for the Treasury to reconfigure its debt portfolio from short to long maturities. For every $1 trillion that is moved from 4.5-percent bills to 3.5-percent bonds, the Treasury saves $10 billion annually. Per our latest debt-cost forecast, a transition of $5 trillion of debt that lowers the yield by one percentage point, would be enough to keep the debt cost from passing the $1 trillion mark.

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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.