Wednesday, April 10, 2024 10:52:13 AM
I found this article very interesting. First the government is proposing to eliminate treasury holdings from the SLR (Supplemental Liquidity Ratio) calculation. The new SLR rule change could allow banks to be an endless buyer of treasury debt since they don't need to set aside cash in reserve. This is going to be very critical for point #2 coming up. Somebody has to buy all the debt that the government needs.
Point two, I had no idea that the vast majority of treasuries issued is bills, that is one year or less. T-notes are about 10-11%, and bonds look to be less than 2%. This is simply amazing and shocking. That means that roughly 87-88% of Treasury sells are T-bills. 1 year bills are currently selling for 5.03% and 6month 5.34%. By my calculation our interest rate on current holdings is running between 3.0% and 3.4%. At the rate of issuing $7T in new debt a quarter, that means that for the next two quarters we will replace 41% of our debt with something in the range of 5% vs 3%. By Year End (Sept) our interest payment will hit $1.4T annualized which will be 31% of our revenue, up from the current 23%. If we go into a recession, revenue will go down for next year, but interest cost will continue to climb, ugly for sure for whoever is the next president.
So if by 2026 our interest hits 50% of revenue, will that be enough for congress to do something to rein in spending? I would say it is now too late for simple action, what's coming is going to amaze everyone. Huge spending cuts, big new taxes and special assessments will have to get really ugly. Let's go back to a 90% top income tax bracket, Bernie and Warren will love it.
This is going to be fun to watch. I am glad for the rule change for the banks because there are going to be plenty of people bailing on the market and wanting to put their money in MMF's. Banks can now really get in on the action.
I can't wait to see the March numbers in about a week.
https://www.zerohedge.com/markets/treasury-debt-pristine-collateral-or-red-flag
Point two, I had no idea that the vast majority of treasuries issued is bills, that is one year or less. T-notes are about 10-11%, and bonds look to be less than 2%. This is simply amazing and shocking. That means that roughly 87-88% of Treasury sells are T-bills. 1 year bills are currently selling for 5.03% and 6month 5.34%. By my calculation our interest rate on current holdings is running between 3.0% and 3.4%. At the rate of issuing $7T in new debt a quarter, that means that for the next two quarters we will replace 41% of our debt with something in the range of 5% vs 3%. By Year End (Sept) our interest payment will hit $1.4T annualized which will be 31% of our revenue, up from the current 23%. If we go into a recession, revenue will go down for next year, but interest cost will continue to climb, ugly for sure for whoever is the next president.
So if by 2026 our interest hits 50% of revenue, will that be enough for congress to do something to rein in spending? I would say it is now too late for simple action, what's coming is going to amaze everyone. Huge spending cuts, big new taxes and special assessments will have to get really ugly. Let's go back to a 90% top income tax bracket, Bernie and Warren will love it.
This is going to be fun to watch. I am glad for the rule change for the banks because there are going to be plenty of people bailing on the market and wanting to put their money in MMF's. Banks can now really get in on the action.
I can't wait to see the March numbers in about a week.
https://www.zerohedge.com/markets/treasury-debt-pristine-collateral-or-red-flag
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