Source: Fortune.com
Summary
The US federal government has been relying heavily on short-term securities to manage its $39 trillion debt, with 85% of debt issuance in the past few years being Treasury bills that mature in a year or sooner. This has led to 20% of outstanding federal debt coming due in the next four months, and 33% within a year. The risk of a sharp rise in short-dated yields is high, particularly if the Fed hikes rates more than expected. The Fed has sounded hawkish on rates, with new Chair Kevin Warsh taking a hard line on inflation, and other policymakers signaling concern for prices versus jobs.
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The numbers tell one story.
The Treasury Department is playing a game of debt refinancing, with trillions of dollars coming due in the next few months. The Fed’s hawkish stance on rates is adding to the pressure, with policymakers predicting rate hikes soon. The collapse of the US-Iran ceasefire has sent oil prices surging, and higher energy prices will add to cost pressure. The Treasury Department faces enormous borrow needs, with a projected annual budget deficit of $2 trillion.
The situation is unsustainable, with bond markets becoming more sensitive to high debt and fiscal credibility concerns. As Ariane Curtis of Capital Economics warned, “the longer that yields stay high, and the more debt is refinanced or issued at those levels, the more unsustainable the debt path will become.”
Author: Evan Null
