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APS Radio News — A number of investors and economists seem to be asking the question, “Is the level of US debt sustainable”, according to ANS
For example, an analyst at a major investment firm maintains that the level of deficit spending by the government as well as higher interest rates on 10 year and 30 year bonds are not sustainable.
In recent months, the Treasury Department has been increasing sales of long-term government bonds.
During that period interest rates on 30 year bonds have increased to levels not seen in over a decade, ANS reported.
Some investors say that high interest rates of long-term bonds eventually will depress the economy and that a rally in purchases of those bonds will help to reduce yields.
There’s an inverse relationship such that when interest rates of government bonds increase, prices of bonds decrease.
On the other hand, those who believe that the economy will falter and that foreign-based creditors will be less likely to want to hold US Treasuries believe that government bonds will produce similar yields.
Analysts say that the sell-off in long-term bonds accounts is ascribed to that way of thinking.
Last week 30 year bonds reached yields not seen since 2011; on Friday, interest rates rose to 4.379%, ANS reported.
As well, 10 year bonds produced the highest yields since 2007.
In 2020, in the context of what were called government stimulus programs, which were implemented reportedly in response to the virus, the national debt rose markedly, as trillions of dollars were spent on the fiscal side.
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Reportedly because of what was being called a “pandemic”, a number of the world’s central banks embarked on massive programs of monetary expansion, starting in late February and early March of 2020.
For its part, between the early part of March of 2020 to over a year later, the US Federal Reserve added over $4 trillion to its holdings, by purchasing billions of dollars’ worth of Treasury bonds and corporate bonds each month during that period.
As well, at that time it kept interest rates rather low.
Other central banks, including the Bank of Japan and the European Central Bank, followed similar policies.
In addition, during that period many countries engaged in lockdowns; many small and medium-sized businesses and enterprises were shuttered by way of orders issued by public health officials, politicians and various administrators.
One of the direct causes of those shutdowns was the development of shortages.
According to a number of economists, the combination of shortages of various goods and services and massive programs of “quantitative easing” led to substantially higher rates of inflation.
In consequence of shuttered economies and higher rates of inflation in the first world, less developed countries suffered greatly, due, in part, to shortages of supplies and due to lowered demand.
In 2020, short-term Treasury bills increased to more than 25% of US debt, as consequence of fiscal spending that was said to be in response to lockdowns and an economic downturn.
One of the drawbacks of issuing more short-term bills is that those need to be financed by long-term bonds.
According to ANS, in recent weeks, the Treasury Department auctioned almost $24 billion of 30-year bonds. The latter produced a yield of nearly %4.2.
Still, because of lackluster demand, some of the largest banks financed their share of the auction.
Recently the US’ credit rating was downgraded from triple A status.
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