by Peter Schiff, Schiff Gold:
The Treasury increased the total debt by $27B in June. Activity slowed in the latest month across all instruments, but particularly the conversion of short-term to long-term. After massive moves to extend debt maturity and shrink short-term debt by $530B over 4 months (shown below by the large negative turquoise bars), July went very quiet.
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Note: Non-Marketable consists almost entirely of debt the government owes to itself (e.g., debt owed to Social Security or public retirement)
Figure: 1 Month Over Month change in Debt
Despite the recent slow-down in debt issuance, the Treasury has added more than $1T in debt during the first 7 months of the year. The current debt ceiling is $31.4T which leaves the Treasury about $800B before it must pursue “extraordinary measures”.
Figure: 2 Year Over Year change in Debt
The recent conversion of short-term debt to long-term debt can be seen below as the Treasury has extended the average maturity of the debt to record highs. Current average maturity is 6.16 years, up from 5.76 just before Covid hit.
Unfortunately, this has not prevented the interest on the debt from creeping up. The Fed hiking cycle has brought the weighted average interest rate up from 1.3% to 1.53%. 23bps may not sound like much, but on a $30.6T balance, that comes out to $70B!
Figure: 3 Weighted Averages
The chart below shows the impact of the higher interest rates. Interest on marketable debt has returned to the old all-time high of $360B in very short order. Even more concerning is the pace of the increase. Interest has increased 22% or $65B in 7 months!
The black line shows the interest as calculated by the Federal budget due out next week (below is through June). This will include other interest charges beyond Marketable debt such as the newly popular I-Bonds, which is doling out interest above 9%!
Figure: 4 Net Interest Expense
The chart below shows how the popularity of I-Bonds has exploded since November of last year. The total I-Bonds balance has increased by more than 50% in 8 months. A guaranteed 9% ROI is an incredible investment in these uncertain times. The balance would be way higher if it was not capped at $10k annually per social security number.
Note: I Bonds fall under Non-Marketable debt but is held by the public
Figure: 5 I Bonds
Digging into the Debt
The table below summarizes the total debt outstanding. A few key takeaways:
On a monthly basis:
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- July issuance was 85% below the TTM average
- New debt was still focused on the long end of the curve with 7-10 year and 20+ seeing the most additions
- Bills saw a modest net reduction of $9B
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On a TTM Basis:
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- Debt is up $2.1T which is actually greater than the $1.9T added as of July 2021 but well below the $4.5T added as of July 2020
- Even the balance within Notes has been targeted for extension
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- Issuance of 1-3 year and 3-7 year is down 55% and 46.5% respectively, whereas issuance of 7-10 year has increased 251%!
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Figure: 6 Recent Debt Breakdown
Debt Rollover
As shown above, annualized interest on the debt has surged in recent months. This will only continue as the Treasury is forced to roll over significant amounts of debt in the months ahead at much higher rates as shown below.
