LIVE MARKETS-US interest bill tops $1 trillion, but no 'fiscal apocalypse' yet
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US INTEREST BILL TOPS $1 TRILLION, BUT NO 'FISCAL APOCALYPSE' YET
Washington's annual interest bill has topped $1 trillion for the first time, but that does not yet point to a fiscal crisis, according to TD Securities analysts Gennadiy Goldberg and Molly Brooks.
Interest costs have risen 215% in five years and will likely reach $1.1 trillion at the end of fiscal 2026, a record share of federal spending. If yields and issuance remain roughly unchanged, TD sees the Treasury’s financing costs rising to $1.4 trillion in fiscal year 2027, $1.5 trillion in fiscal year 2028 and $1.6 trillion in fiscal year 2029.
There are upside risks to these estimates. A further 100 basis point increase in rates across the curve, however, would add an extra $430 billion in interest payments in fiscal year 2027 alone. Treasury's heavier use of short-term bills also makes its costs more sensitive to Fed rate hikes.
But with the average yield at 3.4% and still well below nominal GDP growth, TD sees fears over a fiscal apocalypse as overstated, though the analysts note that fiscal concerns are contributing to the selloff in Treasuries. The debt's average maturity of 5.9 years also means higher rates feed through slowly.
"We believe that a fiscal apocalypse is not upon us just yet," the bank said.
(Karen Brettell)
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