The United States may face increased pressure to sell off Treasuries as the amount of estimated annualized interest payments on the nation’s debt has surged past $1 trillion. This represents a doubling of the projected amount in just 19 months, indicating a significant rise in the government’s debt repayment bill. The rise in yields on long-term Treasuries in recent months suggests that the government will continue to face an escalating interest bill, possibly reigniting debate about the US fiscal path and causing further increases to Treasury coupon auctions and T-bills outstanding.
The estimated interest expense is calculated using US Treasury data, which states the government’s monthly outstanding debt balances and the average interest it pays. However, the measure of estimated interest costs is different from what the Treasury actually paid, as the interest costs in the fiscal year that ended Sept 30 ultimately totaled $879.3 billion, up from $717.6 billion the previous year, and about 14% of total outlays. The heavy borrowing from Washington has already driven up bond yields, threatened the return of the so-called bond vigilantes and led Fitch Ratings to downgrade US government debt in August. Bloomberg Intelligence strategists Ira Jersey and Will Hoffman wrote in a research note that there will be further increases to Treasury coupon auctions and T-bills outstanding going forward, citing deficits of over $2 trillion in the foreseeable future and climbing maturities following the increase of issuance from March 2020 that will also need to be refinanced. This suggests a challenging fiscal path for the US in the coming years, with potential implications for the bond market and economic stability.
