Trump May Face New Record as 30-Year Treasury Borrowing Cost Could Hit Highest Since 2001
The U.S. government could face an awkward moment Thursday night: issuing 30-year Treasury bonds at the highest borrowing cost since 2001. The Treasury is scheduled to sell $25 billion of 30-year bonds at its regular Thursday auction. In the when-issued market, where bonds trade before they are officially issued, the new debt is expected to carry a yield of about 5.24%. If it is issued at that level, it would represent the highest financing cost since 2001. The 30-year Treasury yield has been above 5% for most of the time since May. Investors are concerned that rising energy prices could force the Federal Reserve to keep interest rates high for years. Demand from traditional buyers of long-term bonds has also weakened, while major technology companies have been issuing large amounts of debt to fund construction. Those factors have continued to push yields higher. For President Donald Trump and Treasury Secretary Scott Bessent, persistently high Treasury yields mean the U.S. debt burden could compound more quickly. The market in 2001 was concerned about whether the U.S. government was borrowing too little. Since then, the amount of outstanding U.S. government debt has increased tenfold to about $31 trillion. The cost of debt at a 5% yield is therefore vastly different today. In the current fiscal year, which ends in September, the government's interest expense on its debt has already reached $1.17 trillion, up 15% from a year earlier. Rising Treasury yields are one factor behind the increase. At Wednesday's 10-year Treasury auction, the yield on that maturity reached its highest level since 2007. According to data from the U.S. Congress, U.S. debt increased by $2.25 trillion during the first year of Trump's second term. By July this year, the increase had reached $3.16 trillion. With long-term Treasury yields remaining elevated, Bessent is also trying to navigate the situation. Last week, the Treasury made an unexpected change to its quarterly borrowing-policy statement. Whereas its previous statement said it would continue evaluating whether to potentially increase the issuance of coupon-bearing securities, the latest statement said it was considering possible adjustments. The change in wording was interpreted as a sign that the Treasury could reduce expensive long-term Treasury issuance and meet more of its financing needs through short-term borrowing. That would extend the Treasury's current strategy of shortening the maturity of its debt. Officials are directing more issuance toward Treasury bills maturing within one year. This can avoid the higher yields on longer-term debt and reduce borrowing costs in the near term, but at the cost of increasing future refinancing risk. John Fasi, a managing director at BTG Pactual Asset Management, said the only viable solution to the Treasury's borrowing problem is for the U.S. government to tighten its budget. “Trying to keep shifting issuance toward the short end has limits, right? If you keep doing this, it eventually becomes irresponsible,” he said.
The Treasury is scheduled to sell $25 billion of 30-year bonds at its regular Thursday auction. In the when-issued market, where bonds trade before they are officially issued, the new debt is expected to carry a yield of about 5.24%. If it is issued at that level, it would represent the highest financing cost since 2001.
The 30-year Treasury yield has been above 5% for most of the time since May.
Investors are concerned that rising energy prices could force the Federal Reserve to keep interest rates high for years. Demand from traditional buyers of long-term bonds has also weakened, while major technology companies have been issuing large amounts of debt to fund construction. Those factors have continued to push yields higher.
For President Donald Trump and Treasury Secretary Scott Bessent, persistently high Treasury yields mean the U.S. debt burden could compound more quickly.
The market in 2001 was concerned about whether the U.S. government was borrowing too little. Since then, the amount of outstanding U.S. government debt has increased tenfold to about $31 trillion. The cost of debt at a 5% yield is therefore vastly different today.
In the current fiscal year, which ends in September, the government's interest expense on its debt has already reached $1.17 trillion, up 15% from a year earlier. Rising Treasury yields are one factor behind the increase. At Wednesday's 10-year Treasury auction, the yield on that maturity reached its highest level since 2007.
According to data from the U.S. Congress, U.S. debt increased by $2.25 trillion during the first year of Trump's second term. By July this year, the increase had reached $3.16 trillion.
With long-term Treasury yields remaining elevated, Bessent is also trying to navigate the situation.
Last week, the Treasury made an unexpected change to its quarterly borrowing-policy statement. Whereas its previous statement said it would continue evaluating whether to potentially increase the issuance of coupon-bearing securities, the latest statement said it was considering possible adjustments.
The change in wording was interpreted as a sign that the Treasury could reduce expensive long-term Treasury issuance and meet more of its financing needs through short-term borrowing.
That would extend the Treasury's current strategy of shortening the maturity of its debt. Officials are directing more issuance toward Treasury bills maturing within one year. This can avoid the higher yields on longer-term debt and reduce borrowing costs in the near term, but at the cost of increasing future refinancing risk.
John Fasi, a managing director at BTG Pactual Asset Management, said the only viable solution to the Treasury's borrowing problem is for the U.S. government to tighten its budget.
“Trying to keep shifting issuance toward the short end has limits, right? If you keep doing this, it eventually becomes irresponsible,” he said.