The Government’s Borrowing Bill Just Quietly Hit a Six-Month High

The average interest rate the US government pays on its Treasury Notes rose to 3.309% in July, up from 3.283% in June. That’s a sixth consecutive monthly increase, and the rate is now 6.33% higher than it was a year ago.

A number that small can look like noise. It isn’t.

The Bigger Picture

Think of the federal debt as a giant adjustable-rate mortgage that constantly needs to be refinanced. Every time a Treasury Note matures and the government issues a new one, it rolls over that debt at whatever the current market rate happens to be. When rates rise for six straight months, the government’s annual interest bill grows with each rollover, automatically, without any vote or decision. The economy’s interest rate gauges are sitting high by historical standards, which means that refinancing friction is real and ongoing. Credit spreads are tight and markets look calm, which is constructive, but the underlying cost of carrying $30-plus trillion in debt quietly compounds in the background.

Why It Matters

In past cycles, a sustained rise in the government’s average borrowing cost has eventually crowded into fiscal math: higher interest payments mean less room for spending, more pressure to issue even more debt to cover the gap, or both. For businesses and capital allocators, the historically relevant question has been whether rising government borrowing costs eventually push private-sector rates up with them, since the Treasury is competing for the same pool of investor dollars. The tight credit spreads today say that competition hasn’t turned painful yet, but the trend in this rate series is one worth tracking alongside the 10-year yield.

Bottom Line: Six months of consecutive increases in the government’s average Treasury Note rate means the US debt pile is slowly, quietly getting more expensive to carry. The question worth sitting with: at what point does that math start showing up in places the bond market can’t ignore?

Source: US Treasury Fiscal Data

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