U.S. Debt Cost Sets New Record

 Tuesday's Treasury auctions sold 13- and 26-week bills. In the former auction, the Treasury once again increased the debt under this maturity class, from last week's $62.86 billion to $66.46 billion. Investors were enamored, apparently, tendering $167.97 billion, an increase by $13.24 billion from last week. This came out to an increase in the T/A from 2.46 last week to 2.53. 

The median yield of 4.5 percent was almost identical to last week's 4.51, solidifying the "new high" for short-maturity Treasury securities. 

At the 26-week auction, the Treasury upped the offered volume, albeit modestly: from $52.94 billion last week to $53.17 billion. With a $9.86 billion hike in investor tender, to $133.69 billion, the T/A rose from 2.34 to 2.51. 

Here, too, the median yield stayed virtually unchanged: 4.63 percent compared to 4.64 percent last week. 

The 13-week bill is short enough to now replace maturing batches that were sold under the higher interest rates we started seeing at the end of this past summer. The maturing $63.5 billion paid $3,75 percent; the annualized increase in the debt cost was $609 million. 

The 26-week is still replacing low-yield batches: here, $48 billion matured, and with it 2.87 percent in median yield. The annualized debt cost rose by $1.084; in total, today's auction added $1.693 billion to the annualized cost of the U.S. debt. 

This increase was enough to push the average estimated interest rate on the federal government's debt to 2.25 percent, up from 2.24 percent last week. It was 2.20 percent at the beginning of the year and 1.87 percent on October 1, the start of the 2023 fiscal year. 

Interest rates in the secondary market continue to accentuate the inverted yield curve. Figure 1 reports the rates from the three most recent Tuesdays:

Figure 1

Source: U.S. Treasury

If the U.S. debt stopped rising today, the debt cost for the whole fiscal year would be an estimated $703.6 billion. This is up from $579.4 billion at the start of the year. This is a static estimate, based on the obviously unrealistic assumption that there would be no more increases in the debt for the rest of the fiscal year, and based on the equally unrealistic assumption that the debt rollover effect would stop affecting the debt cost. 

We will have a dynamic forecast of the debt cost in Friday's weekly update.

--

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.