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On April 7, 2020, total federal borrowing from the public reached $18 trillion, the highest amount ever recorded. That figure represents the net amount that the United States Treasury has borrowed from creditors by issuing securities that raise cash to support government activities. Debt held by the public does not include intragovernmental debt, which, in simple terms, is debt that the government owes itself. As the United States borrows a significant amount of money to respond to the COVID-19 pandemic, let’s take a closer look at a few key characteristics of Treasury borrowing that can affect its budgetary cost, including the different types of Treasury securities issued to the public as well as trends in interest rates and maturity terms.
The U.S. Treasury offers marketable and nonmarketable securities. Marketable securities are sold at auction in various maturities and traded on secondary markets. Such securities represented 97 percent of all debt held by the public at the end of fiscal year 2019. Nonmarketable securities are issued directly to buyers (rather than auctioned) and are not traded in secondary markets; that type of issuance made up just 3 percent of total debt held by the public at the end of 2019.
Marketable Treasury securities are issued in various forms:
Treasury data show that the average interest rate on all U.S. interest-bearing debt steadily declined from 6.5 percent in January of 2000 to 2.4 percent at the end of 2019. The average interest rate began to fall at the onset of the 2008 financial crisis and remained low throughout the recovery — it reached its lowest point of 2.2 percent in November 2016 (until the recent rapid drop in interest rates caused by the pandemic). Even when the economy was considerably stronger at the end of 2019, the average interest rate of 2.4 percent was still relatively low.
Between January 2000 and December 2019, the average interest rate for 3-month Treasury bills was 1.7 percent, while the average rate for 10-year Treasury notes was 3.4 percent. At the end of 2019, the yields were 1.6 and 1.9 percent respectively, both lower than their 20-year averages and substantially lower than their pre-recession peaks.
Treasury yields have plummeted recently as the United States grapples to address the economic impact of the COVID-19 pandemic. According to the Treasury, the average interest rate on marketable Treasury securities as of March 20, 2020 was just 0.5 percent.
The average weighted maturity of all marketable debt dropped to just four years at the height of the financial crisis in December 2008 as investors shifted their money into low-risk options like Treasury securities. With interest rates at low levels, the Treasury has taken advantage of the opportunity to lengthen the average maturity of its debt and lock in low rates for a longer period. By the end of 2019, the average maturity on outstanding debt had risen to 70 months, or nearly six years — that maturity is about eight months longer than the 20-year historical average.
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