Issuance of Treasuries on the Rise
The prospect of an increasing deficit has led to an increase in debt issuance by the Treasury, due to an expected shortfall of tax revenue. The Treasury issues debt in order to fund the ongoing operations of the U.S. government.
Many of the recent tax measures passed by Congress are expected to reduce revenues while increasing spending, which will in turn be funded by issuing new Treasuries.
The debt management process is comprised of both the issuance of new debt and the retirement of preexisting debt. Should the Treasury issue more debt than it is retiring, then there is a net increase in the amount of debt outstanding.
Over the past 18 years, the Treasury has issued an average of $505.4 billion of debt each month, while also retiring, or simply paying off an average of $454.8 billion every month. This deficit has been a subject of constant political debate.
Rising interest rates may start to be a significant factor on Federal debt payments. As the Treasury issues new debt, it is doing so at a higher cost of capital (higher interest rates) than preexisting debt. Should rates rise too far too fast, then the interest payments, also known as interest expense on government debt, might start to become an unfavorable expense.
Sources: U.S. Treasury
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