Another Debt Cost Record

Only one auction was held on Tuesday. The Treasury sold $40 billion worth of 3-year notes, exactly the same amount as in December. This auction attracted $113.58 billion in tender from investors, up from $102.06 billion last month. This pushed the T/A up from 2.55 to 2.84, the highest tender-accept ratio for the 3-year maturity class in at least three years. 

Consistent with how market forces would operate under excess-demand conditions, the rising T/A is combined with a drop in the median yield, which fell from 4.03 percent last week to 3.93 percent. This is the second month in a row where the 3-year note auction has sold at a lower yield—the November auction closed at 4.54—but the rollover effect nevertheless pushed the debt cost up: 

• The maturing batch of $39.2 billion 3-year notes yielded 1.54 percent, costing the Treasury $604 million a year;
• The $40 billion batch sold today, with a 3.93 percent median yield, has an estimated annualized cost of $1.572 billion.

In other words, the debt cost rose by $968 million.

The rise in yield was enough to push the estimated interest rate of of the U.S. debt to 2.23 percent. It was 1.87 percent at the start of the current fiscal year. 

Interest rates on the secondary market for Treasury securities went up across the board today. The 1-month now yields 4.41 percent, the highest so far this fiscal year. All maturities from three months to a year pay more than 4.7 percent, while every maturity three years and up yield less than four 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.