May 7, 2020

What Role Has Federal Debt Played in the Response to the COVID-19 Pandemic?

The federal government has enacted four pieces of legislation that provide important relief to individuals and corporations that have been impacted by the COVID-19 pandemic. To begin financing those provisions, which will cost more than $2 trillion1, the Treasury Department has accelerated its borrowing. This blog provides additional detail on that acceleration.

Since March 1, Treasury borrowing has risen by $1.8 trillion. Much of that increase has occurred since March 30, which was just after the largest piece of relief legislation was enacted.

Debt has increased rapidly since the end of March

Almost all of that new debt has been issued in the form of Treasury bills. Such securities, which mature in one year or less, account for 84.8 percent of the increase in debt since March 1. Treasury notes, which mature in two to 10 years, account for 14.9 percent of the increase. Treasury bonds, which mature after more than 10 years, along with Treasury inflation-protected securities and floating-rate notes, combine to account for 0.3 percent of the increase.

Since the end of March, the government has significantly increased its borrowing

The government is paying very little interest on those new Treasury bills as rates dropped when the extent of the pandemic became clear. For the 4-week bills that were auctioned on May 5, the government paid investors an interest rate of 0.10 percent. That is considerably lower than the 1.52 percent interest rate that was paid on the 4-week bills that were issued on January 14.

Federal borrowing is projected to continue its rapid increase during the months ahead. On May 4, the Treasury Department announced that it expects to borrow a total of $3 trillion during the quarter that runs from April through June. Looking further ahead, Treasury anticipates that in the quarter that runs from July through September, they will borrow an additional $677 billion.

The closure of much of the economy was a critical component of the nation’s response to COVID-19. The federal government’s decision to support the individuals that were negatively affected by the closure was a necessary next step. Fortunately, the Treasury Department has been able to quickly raise the funds needed for the relief legislation at low interest rates; when the economy has stabilized, though, focus needs to return to the country’s underlying fiscal situation.


Relief Legislation #1: Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020

Relief Legislation #2: Families First Coronavirus Response Act

Relief Legislation #3: CARES Act

Relief Legislation #4: Paycheck Protection Program and Health Care Enhancement Act

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Related: How Does The Treasury Issue Debt

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