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What Is Going on in the US Debt Markets?

By March 27, 2024Commentary

Another good short-term auction yesterday, once more a record size–$67 billion in five-year notes, sold at the desired interest rate with good demand characteristics.  It will be interesting to see what happens in regard to sizing and outcome of medium and longer-term auctions, like the ten-year and the thirty-year bonds.  You can actually see the recommendations of the Treasury committee which advises on auction sizes for various maturities and so far this year the actual issuance has pretty closely tracked the recommendations.  For the next quarter, there is heavy reliance on very large short-term debt–2 year, 3 year and 5 year; hundreds of billions of dollars.  And conversely, the longer-term auctions, even though carrying a lower interest rate, are far smaller in size.  (UST Auctions)

All of this debt will have to be rolled over (no prospect of a federal budget surplus which lessens borrowing) in the relatively near future.  I don’t know how delusional the Treasury folks have to be to imagine that interest rates will be lower when those rollovers occur.  I suspect that to some extent Treasury is counting on the Federal Reserve to manipulate interest rates and/or buy large amounts of the debt to keep the market from going haywire.  Those shenanigans have their own consequences when the total debt is so high and growing at such a rapid pace.

It is very complex to understand all the ramifications of US debt size, composition, who holds it, the impact on money supply and liquidity so I don’t have a high level of confidence that our beloved bureaucrats, who are increasingly driven only by woke DEI crap, have a clue what they are doing.  Going to be a wild year in the Treasury debt market.

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