Week of September 23 Debt Auctions

The US debt auctions this week, $70 billion in five-year notes and $44 billion in seven-year ones, went pretty well.  Priced at about where expected and demand was generally okay.  A couple of things to note.  This isn’t all the debt issuance, there are a lot of very short term Treasury bills issued every week as well for short-term purposes.  The total this week of $114 billion in new debt is what is startling.  Think about a year of that kind of weekly issuance on average, it is well over five trillion dollars.  And all at much higher interest rates than were being paid a couple of years ago, which is why the interest burden has grown so rapidly.  The interest is crippling our financial flexibility and a lot of that interest goes to foreign buyers.

The other item of note is that despite the Federal Reserve’s large cut in the interest rate it directly controls, market rates on existing US debt rose, including the key ten-year note rate.  This is a clear reflection of the buying segment’s concern about our financial situation, the likelihood of continued high inflation and unwillingness to accept lower rates.  I firmly believe than no matter what the Fed does, we will see higher rates on US debt, and on other debt, which will keep adding to the pressure on the Federal budget and on consumers.  It is a nightmare, with no politician having the courage to acknowledge the difficult steps that have to be taken to get this under control.