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The federal government has enacted four pieces of legislation that provide relief to individuals and corporations that have been affected by the COVID-19 pandemic. To finance those provisions (which will cost more than $2 trillion), as well as to cover the effects of the economic downturn, the Treasury Department has ramped up its borrowing. This blog provides additional detail on the accumulation of debt over the past few months.
Since March 1, Treasury borrowing has risen by more than $3 trillion. Most of that increase has occurred since March 30, which was just after the largest piece of relief legislation was enacted.
The vast majority of new debt has been issued in the form of Treasury bills. Such securities, which mature in one year or less, account for 77 percent of the increase in debt since March 1. Treasury notes, which mature in 2 to 10 years, account for 18 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 5 percent of the increase.
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 issued on August 18, the government paid investors an interest rate of 0.09 percent. That is considerably lower than the 1.60 percent interest rate that was paid on the 4-week bills that were issued on February 25.
Federal borrowing is projected to continue its rapid increase during the months ahead. The Treasury anticipates that they will borrow an additional $947 billion in the quarter that runs from July through September and an additional $1.216 trillion in the following quarter that runs from October through December.
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 and businesses that were 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.
Related: How Does The Treasury Issue Debt
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