TLDR: The US should not refinance its public debt

by Pragmatic Capitalism (these highlights provided for you by Annotote)

These highlights will save you 15 minutes, so take 1 of them to check out Annotote!


One of the common ideas these days is that we should be “refinancing” government debt and “locking in” low rates [as both President Trump and] Treasury Secretary Steven Mnunchin recently said


as individuals we’re trained to reduce our interest costs because this reduces our solvency risks. The same is not necessarily true for the US government, however, and … I would actually be doing the exact opposite — I would be reducing the maturity level of new debt issuance.



The current average weighted maturity of US debt is about 5.8 years. At current interest expenses the US government is paying about 1.2%


With a 3.1% 30 year T-Bond the US government would almost certainly have to pay much higher rates than 1.2% to issue a 50 or 100 year bond.


The demand for short dated debt is extraordinary. With an average bid to cover of 3.8 for 26 week Bills in Q3 auctions, the demand is 65% stronger than 30 year T-Bonds.


Since the Fed [controls short-term interest rates] they can effectively control the cost of the national debt if it is comprised of short dated maturities.


Those highlights just saved you 15 minutes, so take 1 of them to check out Annotote!