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At the close of December 2020, total federal borrowing from the public reached $21.6 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 are traded on secondary markets. Such securities represented 97 percent of all debt held by the public at the end of calendar year 2020. 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 2020.
Marketable Treasury securities are issued in various forms:
Over the last few years, short-term Treasury bills have grown as a share of total marketable debt. At the end of 2011, bills represented 15 percent of total marketable debt; recent borrowing to address the pandemic has boosted that share to 24 percent today, reflecting the comparative ease with which the Treasury can raise cash quickly by issuing bills. As a result, the share of total marketable debt represented by Treasury notes has declined from 67 percent to 53 percent over the same period.
Treasury data show that the average interest rate on all U.S. interest-bearing debt steadily declined from 6.6 percent in December of 2000 to 1.7 percent at the end of 2020. The average interest rate began to fall at the onset of the 2008 financial crisis and remained low throughout the recovery, reaching 2.2 percent in November 2016. At the end of 2019, before the pandemic hit, the average interest rate had only crept up to 2.4 percent.
The daily interest rates for both 3-month Treasury bills and 10-year Treasury notes experienced notable fluctuations between January 2000 and December 2020. In January 2000, the daily yield on Treasury bills was 5.5 percent, while the yield on notes was 6.6 percent. However, by January 2003 the yields dropped to just 1.2 percent on bills and 4.1 on notes as a result of greater demand for safe investments in light of the 2001 recession. As the economy recovered and investor confidence in the economy grew between 2003 and 2007, the demand for Treasury securities lessened and thus the yields on bills and notes both rose to around 5 percent. Then, by the late fall of 2008 when the Great Recession was at its worst, bill yields plummeted to a low of 0.01 percent, and remained below 1.0 percent until the middle of 2017. Meanwhile, the yield on notes fell to around 2.0 percent in late 2008, and averaged 2.5 percent over the next 10 years. Following a 5-year peak of 2.5 percent in early 2019, the yield on Treasury bills at the end of 2020 had fallen to just 0.09 percent as the economic fallout associated with the COVID-19 pandemic persisted. Note yields, on the other hand, had reached a 5-year peak of 3.2 percent in late 2018 before dropping to just 0.9 percent at the end of 2020.
The average weighted maturity of all marketable debt dropped to just four years at the height of the Great Recession in December 2008 as the Treasury issued significantly more short-term securities in order to raise cash quickly to combat the economic fallout. With interest rates at low levels over the last few years, the Treasury took advantage of the opportunity to lengthen the average maturity of its debt and lock in low rates for a longer period. However, the average maturity dropped from 70 months in February 2020 to 62 months in July 2020 as the Treasury ramped up short-term borrowing quickly to address the effects of the COVID-19 pandemic. More recently, average maturity has risen back to 65 months as some of the short-term borrowing was replaced by longer-term maturities — in the final quarter of calendar year 2020, the share of total outstanding marketable Treasury securities represented by bills declined slightly from 25 to 24 percent, while the share represented by Notes increased from 52 to 53 percent. The current average maturity of 65 months is 2.5 months longer than the 20-year historical average.
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