Majority of debt is short-term
This article first appeared on SchiffGold.
The Treasury has still been issuing tons of short-term debt to finance exploding deficits. In the last 4 months, $1.1T in new debt has been added, with the vast majority being financed by debt maturing in less than 10 years. Over $400B has been debt maturing in less than 1 year. This will now be Trumps problem to solve.
Note: Non-Marketable consists almost entirely of debt the government owes to itself (e.g., debt owed to Social Security or public retirement)
Figure 1: Month Over Month change in Debt
In the first ten months of 2024, the Treasury has added nearly $2T in new debt.
Figure 2: Year Over Year change in Debt
So far in 2024, the Treasury has kept a fairly stable cash balance of $800B.
Figure 3: Treasury Cash Balance
The chart below shows the true danger of the recent drop in the overall maturity of the debt. After topping out at 6.24 years in 2023, the average weighted maturity of the debt is 5.9 years. At the same time, weighted average interest rate has increased from 1.32% to 3.1%.
Figure 4: Weighted Averages
The Treasury is in a really tough spot as rising interest payments have absolutely exploded debt service costs. The annual run rate is now close to $900B. It was around $300B as little as 3 years ago.
Figure 5: Net Interest Expense
Using the current Fed dot plot and the rolling maturity of the debt, produces the forecast below. Again, the Treasury left “debt affordability” in the rearview mirror in 2021. The Treasury is now absolutely hemorrhaging cash on debt service costs.
Figure 6: Projected Net Interest Expense
Speaking of debt issuance and rollover, the chart below shows the forecasted debt maturing for 2-10 year maturities. Debt rolling over will be $800B higher in 2025 than it is in 2024. It will be a full $1T higher in 2026.
Note “Net Change in Debt” is the difference between Debt Issued and Debt Matured. This means when positive it is part of Debt Issued and when negative it represents Debt Matured
Figure 7: Treasury Note Rollover
The yield curve has finally gone back to positive sloping between the 2 and 10 year. That could get even more positive sloping with the upcoming rate cut. It is strange that when it was inverted, the treasury was actually borrowing more short-term debt. This is likely because Yellen knew short-term rates would be coming down in the near future and was okay paying higher rates temporarily. She now needs to hope that long-term rates do not go back up, although this is also no longer her problem.
Figure 8: Tracking Yield Curve Inversion
The chart and table below show how the debt and interest has changed over time.
Figure 9: Total Debt Outstanding
Category | # Years Ago | Bills | Notes | Bonds | Other | Total Mrkt | Nonmarketable |
|---|---|---|---|---|---|---|---|
Balance ($B) | 0 | 6,187 | 14,444 | 4,744 | 2,616 | 27,991 | 7,961 |
0.5 | 5,867 | 13,995 | 4,515 | 2,542 | 26,918 | 7,699 | |
1 | 5,457 | 13,762 | 4,293 | 2,491 | 26,004 | 7,696 | |
3 | 3,852 | 12,646 | 3,373 | 2,260 | 22,132 | 6,777 | |
20 | 982 | 2,125 | 552 | 244 | 3,903 | 3,527 | |
% of Total Balance | 0 | 17.2% | 40.2% | 13.2% | 7.3% | 77.9% | 22.1% |
0.5 | 16.9% | 40.4% | 13% | 7.3% | 77.6% | 22.2% | |
1 | 16.2% | 40.8% | 12.7% | 7.4% | 77.1% | 22.8% | |
3 | 13.3% | 43.7% | 11.7% | 7.8% | 76.5% | 23.4% | |
20 | 13.2% | 28.6% | 7.4% | 3.3% | 52.5% | 47.5% | |
Avg Interest Rate % | 0 | 4.88% | 2.76% | 3.21% | 0.65% | 3.11% | % |
0.5 | 5.11% | 2.49% | 3.14% | 0.58% | 2.99% | % | |
1 | 5.08% | 2.18% | 3.07% | 0.51% | 2.78% | % | |
3 | 0.06% | 1.44% | 3.14% | 0.39% | 1.35% | % | |
20 | 1.62% | 3.49% | 8.04% | 2.99% | 3.63% | % | |
Annualized Interest ($B) | 0 | 302.1 | 398.5 | 152.2 | 16.9 | 869.8 |
|
0.5 | 300.1 | 348.4 | 141.9 | 14.6 | 805.0 |
| |
1 | 277.3 | 300.3 | 131.6 | 12.6 | 721.9 |
| |
3 | 2.3 | 182.4 | 105.9 | 8.9 | 299.5 |
| |
20 | 15.9 | 74.2 | 44.4 | 7.3 | 141.8 |
| |
Avg Maturity (Yrs) | 0 | 0.21 | 3.42 | 20.86 | 5.91 | 5.90 |
|
0.5 | 0.20 | 3.42 | 21.09 | 6.00 | 5.93 |
| |
1 | 0.19 | 3.42 | 21.35 | 6.04 | 5.95 |
| |
3 | 0.21 | 3.44 | 21.78 | 5.85 | 5.92 |
| |
20 | 0.20 | 2.91 | 16.24 | 10.51 | 4.59 |
| |
Impact of .25% ($B) | 0 | 15.5 | 36.1 | 11.9 | 6.5 | 70.0 | 19.9 |
0.5 | 14.7 | 35.0 | 11.3 | 6.4 | 67.3 | 19.2 | |
1 | 13.6 | 34.4 | 10.7 | 6.2 | 65.0 | 19.2 | |
3 | 9.6 | 31.6 | 8.4 | 5.7 | 55.3 | 16.9 | |
20 | 2.5 | 5.3 | 1.4 | 0.6 | 9.8 | 8.8 | |
Bid to Cover Ratio | 0 | 2.88 | 2.53 | 2.53 | |||
0.5 | 2.91 | 2.59 | 2.6 | ||||
1 | 2.87 | 2.59 | 2.53 | ||||
3 | 3.37 | 2.45 | 2.36 | ||||
20 | |||||||
Data as of: Oct 2024 | |||||||
Many Fed officials and market pundits have called the current fiscal situation “unsustainable”. This is a gross understatement. The current fiscal situation is an absolute train wreck with no way out. It has been called a ticking time bomb for decades. That bomb has gone off as interest rate expense ballooned higher. It is worse than anyone could have imagined.
The Fed is lowering rates again even though by any measure of inflation it should be holding steady or even raising rates. Unfortunately, the Fed no longer has a choice. With the government paying nearly a trillion dollars a year just on interest, rates have to come down or else the debt death spiral will begin in earnest.