Yellen is no longer worried? Breaking 36 trillion, good news from US debt and the Federal Reserve

The sell-off of US debt shows no signs of stopping, even with the Christmas holiday approaching, US debt was still being sold on Christmas Eve.

Among the various types of bonds, the pressure from long-term bonds is particularly evident, with the yield on 10-year US debt reaching its highest point in seven months, or in other words, prices have once again fallen to a low point.

Now the yield on 10-year US debt has surpassed 4.5%, but it is clear that this is not the end. Asset management giant T. Rowe warns the market that yields in the first quarter may exceed 5%, and will likely continue to climb, possibly reaching 6%,

If that happens, it will be the first time in over 20 years.

The total amount of US federal debt had already exceeded 36 trillion weeks ago, but now it seems that Yellen is not nervous about it, and auctions of US debt continue as usual.

Why?

Did the Federal Reserve really lower interest rates by 25 basis points, is this good news?

Previously, the Federal Reserve did not cut rates, and everyone hoped that a rate cut could lower the yield on US debt. But now that fantasy has been shattered; after continuous rate cuts by the Federal Reserve, the yield on US debt has instead risen to 4.6%.

The real reason Yellen is no longer worried may be that her term is coming to an end, and she does not need to have any concerns for next year. Now she just needs to continue issuing new US debt like crazy at the last moment.

Over time, the US may fall into a "vicious cycle of debt": continuously issuing new debt to pay off old debt, and each new issuance comes with higher interest costs, ultimately leading the government into a predicament of "never being able to fully repay the debt".

However, due to the Federal Reserve's rate cuts being far lower than expected, the interest expenses on US debt are increasing, destined to create larger holes.

As of the end of September 2024, the average interest rate on US debt has reached 3.32%.

Looking back to the end of 2021, US interest rates were at historic lows, with the yield on 10-year treasury bonds around 1.5%.

However, entering 2023, as the Federal Reserve gradually raised interest rates, the yield on 10-year treasury bonds quickly climbed to 3.5% or even higher. This led to a significant increase in the interest costs of newly issued bonds, putting greater pressure on the government to repay.

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