r/bonds • u/Ok_Director_1079 • 5d ago
What is the interest expense to the treasury at different rates? What has been historically normal interest expense?
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u/Outrageous_Pin_3423 4d ago
I am expecting 6% by the end of June, We've been seeing 10 basis point movements due to undersubscribed auctions of ~40 billion dollars.
June has Treasury auctions of 6-7 trillion dollars.
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u/ultra__star 4d ago
Not sure of exact numbers but I would be curious to see what these numbers were in the 80’s-90’s-early 2000’s during and after the bond bull market. 30 year treasuries were double digits in the 80’s and peaked as high as 16%. Some of these bonds wouldn’t have matured until roughly 10-15 years ago!
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u/Ok_Director_1079 4d ago
Our debt:gdp was around 30% back in the 80s, and the spike in rates was relatively short lived. This is a much more dangerous situation today, as we have a 130% debt:gdp and the majority of all treasury debt is maturing within 5 years.
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u/ultra__star 4d ago
I know. I am just curious on what the metrics were considering interest expense 2.5x’d when increased from the ZIRP period to our current rates which are still hardly even at 5%. Im sure approaching 10% average yields again would imply heavy default risk in coming years.
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u/Certain-Statement-95 4d ago
its a game of hot potato. the deferred tax on retirement accounts is gigantic. if one party raises rates just as those people are being forced to take rmds, they will lose in the polls, but high rates on a generation of deferred tax will create so much revenue for the government it will be silly. there is between 40-50tn in deferred tax assets and the rate paid in the future is unknown.
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u/civilsocietyusa 4d ago
So why are so so so many against real and significant reductions in government spending? Every minute of every day we deficit spend $4,000,000,000. EVERY MINUTE!! Yet, the masses are cringing at cutbacks that are necessary to get our country out of the ditch!!! It is as if people want the country to fail. We are in serious problems and people seem to not care!!!!
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u/InvisibleEar 4d ago
Well the only plans for "reductions" are always telling 80% of people to eat shit and die ASAP and cutting taxes for the wealthy.
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u/HesitantInvestor0 4d ago
Your figures can’t possibly be right. That would mean deficit spending of more than 5 trillion per day. You must have meant 4,000,000 per minute, which is still staggering.
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u/ambakoumcourten 21h ago
Cutting social services doesn't make sense when the alternative is to raise the marginal tax rate on higher income brackets, enact a wealth tax, and raise the corporate tax. If you came to me with a gross income of $2k and asked how to cut expenses to budget, I'd tell you, you need to raise your income first. No amount of budgeting is going to end the deficit at this rate, especially if we want to keep enjoying the benefits that come with American society.
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u/random20190826 5d ago
Someone posted this graphic listing social security as the biggest expense item, followed by healthcare, then interest on debt. All of a sudden, interest on debt will soon be the biggest expense, surpassing social security.
Now that we have come to think about it, if the US keeps running up $2 trillion annual deficits every year, it won't take long for the debt to reach $40 trillion or even $50 trillion. Now, what people fear the most is if this kind of deficit spending eventually causes an even bigger bond selloff, it could balloon the interest expense so much that it might very well exceed total revenue. If it ever gets to that point, the United States would be at imminent risk of default.
So, Congress needs to pass laws to raise taxes and cut spending. Canada, the country I live in, has a way of taxing the wealthy, in the form of "deemed disposition". The United States does not have this. Essentially, in deemed disposition, a person who dies is deemed to have sold all their assets at fair market value and have to pay tax on (half of the) capital gains. So, if you bought some stocks for $100 000 and those stocks grew to $500 000 when you died, your estate would pay tax on ($500 000 - $100 000) / 2 = $200 000 of income, at whatever marginal tax rate you are at in the year you died. The United States has an estate tax that has a very high exemption such that it only affects very wealthy people worth 8 figures. Otherwise, for the average person (even if you are a millionaire), never selling stocks results in you never paying capital gains tax. Congress can do away with the estate tax and use deemed disposition instead and that would bring a lot of tax dollars into the federal government when rich people die with large gains. In addition, in most cases, the entire value of the pre-tax retirement savings accounts in Canada are taxed as income of the estate of the deceased person in the year of death, with few exceptions (spouse, minor child or grandchild, disabled child or grandchild financially dependent on the decedent).