The US debt management strategy for the past decade has been bizarre


You have to give the UK a tip of the hat

If you’re borrowing, it’s best to finance at the lowest rates possible and for the longest time possible. It doesn’t take a team of thousands of economists to figure that out.

Yet that isn’t what the US did as it accumulated trillions of debt over the past decade.

Only 20-months ago, the US could borrow for 30 years at 2.10%. Today it’s paying 100 basis points more. In any case, the Treasury has consistently decided to borrow at the front end.

That might save a bit of money in the short term, but it’s likely to cost far more in the long term.

Torsent Slok from Deutsche Bank looked at how various major borrowers have decided to finance their debt and found that the US average maturity is significantly shorter than its peers.

If rates go up as the Fed expects, the US will be paying more in the next 3-5 years.

The problem is that the Treasury surveys primary dealers on which debt they want to buy and follows what they say. They had bandied about the idea of a 50-year bond but primary dealers said their wasn’t that much interest.

But primary dealers are looking out for themselves. The Treasury might have paid more to build a market for ultra-long bonds in the past decade but that would have likely been well worth it.



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