April 10, 2020

How Does the Treasury Issue Debt?

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.

Types of Treasury Securities

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 Bills have a maturity of one year or less. Such short-term securities are issued at a discount and the face value is paid upon maturity. Bills represented about 15 percent of all outstanding marketable Treasury debt at the end of 2019.
  • Treasury Notes have maturities ranging from two to 10 years. Notes are coupon securities, which means that the semiannual interest payments are set at the time of issuance and purchasers collect the principal at maturity. Notes are the single largest category of Treasury securities, representing about 60 percent of all marketable debt at the close of 2019.
  • Treasury Bonds have maturities of more than 10 years. Bonds are also coupon securities and represented about 14 percent of all marketable debt at the end of 2019.
  • Treasury Inflation-Protected Securities, or TIPS, have maturities of 5, 10, and 30 years. The principal amounts on TIPS are adjusted semiannually to account for inflation; interest is paid every six months on the adjusted principal. TIPS represented roughly 9 percent of all marketable debt at the end of 2019.
  • Floating-Rate Notes (FRNs) have a maturity of two years and a rate of interest that is adjusted each quarter; the rate is based on the prevailing interest rate for 13-week Treasury bills. Introduced in 2014, FRNs represented 3 percent of total marketable debt at the end of 2019.

Treasury notes represented the majority of outstanding marketable debt at the end of 2019

Average Interest Rate on Treasury Securities

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.

The average interest rate on U.S. Treasury securities has fallen noticeably over the past 20 years

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.

Interest rates for 3-month Treasury bills and 10-year Treasury notes have remained low relative to their pre­recession levels

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.

Average Maturity of Treasury Securities

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.

The average maturity of U.S. Treasury debt has steadily increased following the Great Recession

Related: Infographic: What's in the Coronavirus Aid, Relief, and Economic Security (CARES) Act? Here's a Summary

Image credit: Photo by Hisham Ibrahim / Getty Images


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