In a worrisome development for the United States, the nation’s swelling debt repayment bill may trigger renewed selling pressure on US Treasuries in the coming year. According to an analysis by Bloomberg, the estimated annualized interest payments on the colossal US government debt pile surpassed a staggering $1 trillion by the close of last month. This significant amount represents a doubling of interest payments over the past 19 months and is now equivalent to a substantial 15.9% of the entire Federal budget for fiscal year 2022.
These figures are derived from comprehensive calculations based on US Treasury data, which meticulously track the government’s monthly outstanding debt balances and the average interest it disburses. The exponential growth in these metrics may reignite fervent debate about the US’s fiscal trajectory, particularly given the hefty borrowing activities of Washington in recent times. This dynamic has already played a pivotal role in driving up bond yields, potentially ushering in the return of the so-called “bond vigilantes,” and even prompting Fitch Ratings to downgrade US government debt back in August.
As experts weigh in on this mounting financial challenge, Bloomberg Intelligence strategists Ira Jersey and Will Hoffman have highlighted the potential consequences in a recent research note. They predict that “there will be further increases to Treasury coupon auctions and T-bills outstanding going forward.” They cite a multitude of factors contributing to this looming crisis, such as the expectation of deficits exceeding a colossal $2 trillion in the foreseeable future, compounded by mounting maturities stemming from the surge in issuance that commenced in March 2020, all of which will require extensive refinancing.
The implications of these surging interest payments and the growing US debt repayment bill are profound and could significantly impact the global financial landscape. With interest payments now exceeding $1 trillion, investors may become increasingly wary of US Treasuries as an attractive investment, potentially prompting them to seek higher returns elsewhere. This scenario could translate into renewed selling pressure on US Treasuries, leading to an uptick in yields and a potential increase in borrowing costs for the US government.
In conclusion, the ballooning US debt repayment bill, marked by interest payments surpassing $1 trillion, has the potential to exert significant pressure on US Treasuries in the upcoming year, with wide-ranging consequences for both domestic and global financial markets.
Source: Bloomberg
