Treasuries – Actuarial News

Excerpt:

When Yglesias wrote that column for Vox in 2016, the federal government owed about $19 trillion. Today, it owes more than $33 trillion, and we just added another $2 trillion in a fiscal year with no major national emergencies.

In short, the federal government followed Yglesias’ advice. But it might be more accurate to say it went along with what was clearly a bipartisan consensus formed in the mid-2010s: that borrowing was cheap, debt was easy to afford, and deficit spending allowed everyone to enjoy “a better life” with none of the downsides of austerity.

Unfortunately, the downsides have arrived.

The yields on U.S. Treasury bonds are now hitting levels not seen in decades. The 10-year Treasury bond is nearing 5 percent, while the 20-year bond has already crossed that threshold—and some analysts expect higher yields to be coming, CNBC reported Tuesday.

Why does that matter? “We took out a mortgage thinking we’d be paying 2%, but now we’re paying 5%,” Marc Goldwein, director of policy at the Committee for a Responsible Federal Budget (CRFB) wrote on X (formerly known as Twitter) on Tuesday.

Unlike most mortgages, which have fixed interest rates, much of the U.S. government’s debt is tied up in short-term bonds which periodically “roll over” into new bonds with updated interest rates. As a result, higher interest rates mean higher interest payments—and those funds come directly out of the federal budget, leaving less revenue for everything else the government might aspire to do, whether funding welfare programs or buying more fighter jets.

“That debt, borrowed at low rates, is now being rolled over into Treasuries paying interest rates between 4.5 and 5.6 percent,” the CRFB explained last month. “Though borrowing seemed cheap during those periods, policymakers failed to account for rollover risk, and we are now facing the cost.”

Interest payments on the debt will be the fastest-growing part of the federal budget over the next three decades, according to the Congressional Budget Office’s (CBO) projections. In the shorter term, interest payments are set to triple by 2033, when they will cost an estimated $1.4 trillion—a total that will only grow higher if more unplanned borrowing takes place before then, or if interest rates rise higher than the CBO expects.

Author(s): Eric Boehm

Publication Date: 4 Oct 2023

Publication Site: Reason

Fitch Downgrades U.S. Credit Rating

August 2, 2023August 2, 2023 Mary Pat Campbell

Link: https://www.wsj.com/articles/fitch-downgrades-u-s-credit-rating-56c73b89?mod=hp_lead_pos1

Excerpt:

Fitch Ratings downgraded the U.S. government’s credit rating weeks after President Biden and congressional Republicans came to the brink of a historic default, warning about the growing debt burden and political dysfunction in Washington.

The downgrade, the first by a major ratings firm in more than a decade, is evidence that increasingly frequent political skirmishes over the U.S. government’s finances are clouding the outlook for the $25 trillion global market for Treasurys. Fitch’s rating on the U.S. now stands at “AA+”, or one notch below the top “AAA” grade.

….

Few investors believe that Fitch’s downgrade will immediately challenge that role. Still, it is the first time a ratings firm lowered its headline assessment of the U.S. government’s propensity to pay its bills on time since Standard & Poor’s in 2011 lowered its rating one notch below the top grade. That decision followed another tense debt-ceiling standoff in Congress.

Moody’s, the other member of the three big U.S. ratings firms, continues to give the U.S. its strongest assessment.

Fitch said Tuesday that the downgrade reflects an “erosion of governance” in the U.S. relative to other top-tier economies over the last two decades.

“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” Fitch said.