Treasury debt deluge -- $1 Trillion -- coming

Treasury’s $1 Trillion Debt Deluge Threatens Market Calm

U.S. government could face borrowing at rates near 6%, up from 0.1% less than two years ago

By Eric Wallerstein, The Wall Street Journal, June 7, 2023

Investors are bracing for a flood of more than $1 trillion of Treasury bills in the wake of the debt-ceiling fight, potentially sparking a new bout of volatility in financial markets.

Some on Wall Street fear that roughly $850 billion in bond issuance that was shelved until a debt-ceiling deal was passed — sales expected between now and the end of September, according to JPMorgan analysts — will overwhelm buyers, jolting markets and raising short-term borrowing costs…[end quote]

Money markets could buy the Treasuries but the yield would have to be higher than the Fed’s highly safe daily facility by offering higher yields on T-bills. Given the Fed offers 5.05% at its reverse repo rate facility — which would increase if it upped the fed-funds target range — the U.S. government could be stuck borrowing more than $1 trillion at rates approaching 6%.



What period of time does that $1 tr represent? In other words how relevant is that? Is it for half a year? We are in the two trillion ballpark without interest anyway.

We need some clarity on the time frame. Yes the cost could be $51 b on $850 b more and then other debt rolling over would be much much harder to gage at all. Because much of the prior debt has higher yields than say 5%. I am not sure how much of the debt gets discounted. You can not only look at all debt as having low coupons rates as if from the .1% yield period.

In other words if I do the simple math the government needs $850 b but there will be $150 b more in the total debt issued? Accounting for the articles $1 tr?

$150 b more will be good for the US economy. It crimps inflation because it takes money out of the economy when the sale is made. I am in larger part assuming debt rolling over. Meaning face value on only paper is paid at face value upon maturity at this point but rolling over the debt ah…ah…$150 b is left in the economy…a notching up of inflation slightly.

So where are we? Do we want more consumption in the US economy? We know inflation is easing.

@WendyBG This is not all or nothing enough to hurt us. An alert call is a sort of misnomer.

BTW the Masterclass I mentioned in today’s thread on Ray Dalio, he discusses his mistakes in reading things into news like this. The forecast was often not at all like he expected.

My personal take on econ calls for the market, they are often edit NOT market crushing or even a crazy panic that lasts. The economy and more important businesses even find a way to profit making a mockery of those who think it is going to be a bad ending.

Since they refinance hundreds of billions every month, they will be borrowing more like $5 to $8 trillion at rates approaching 6%. Maybe even $10 trillion.

By the way, I predicted this moments after reading that the recent bill passed by congress and signed by the president has no limit at all. If they are clever, they will issue TONS and TONS of debt over the next two years, trillions and trillions if possible, and then when the next “debt limit” wrangling begins, they’ll have enough cash sitting in various accounts to allow the wrangling to go on for a year or two. :joy:

Treasury should have borrowed to the max in 2020 when the 10YT was yielding less than 1%.



Well … maybe. But it all depends on who is buying. If the only buyer was the Fed, then it doesn’t matter one way or another. The fed doesn’t care if it buys 1% 10 year bonds or 4% 10 year bonds. They simply allow them to roll off anyway. At least for now.

There was talk a decade or two ago about increasing the percentage of treasury debt towards longer term instruments - 10 year, 30 year, and someone even floated the idea of 50 year bonds. The weighted average maturity did increase somewhat, but it still is only something like 80 months or so. There’s a LOT of short-term bills/notes out there, in fact bills and notes comprise 77% of total treasury debt. Treasury bonds only comprise 14%, and the rest is floating rate like TIPS or FRNs.


This is nothing like how a consumer borrows to start a business in zero interest rate times.

The assumption that rising interest rates are a problem for the federal government is way overblown.

The assumption does not realize future GDP growth prospects.

When exactly do you expect GDP growth to outpace government spending growth? What year?

It’s been going the other way for over 100 years now.


Going by the 1946 to 1950 period we are echoing…I expect mid 2024 to be the end of this poorer economic growth and much greater GDP growth during about 35 to 40% of the years to come for up to four decades. Growth over 5% in a year I am saying. Comparable to the last demand side cycle.

The central issue in the current reshoring is the actual factory buildout times are often two years and the IRA supporting that buildout while on now needs to meet the factories.


This chart is more telling of demand side v supply side relations to the federal debt load. The debt load rises but the health of the economy improves from here.


The plans have been announced, but no effect seen so far.

Treasury announces plans to step up T-bill issuance, June 7, 2023
“The U.S. Treasury issued guidance this morning on its plans to increase issuance of Treasury bills in aftermath of the now-resolved debt-ceiling crisis… So far, the increased size of the Treasury issues hasn’t had much of an effect on yields, which were expected to fall anyway once the debt-ceiling crisis was resolved. Some financial analysts have warned that this deluge of Treasury offerings could affect liquidity and have a negative effect on the stock market. But that doesn’t seem to be the case, so far.”

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