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US Debt Duration Grows As T-Bill Share Plunges To Pre-Crisis Levels

Tyler Durden's picture


One of the saving graces of the burgeoning US Federal debt was, for the majority of the post-crisis days, its composition, split between short-term (Bills), and long-term (Coupons) debt. As Bills have on average yielded well below 0.5% (and recently even less, now that the 2 Year is yielding 0.5%), a sizable portion of the US debt, was for structural reasons, paying essentially no interest. Since in early 2009, over a third of total US debt consisted of Bills, due to massive foreign (especially China) and domestic demand for ultra short-term US paper, nearly a third of US debt was "free" to the US. However, as Morgan Stanley points out recently the Bill portion of total marketable debt (which today closed at a record $8.777 trillion) has plunged to just 22%. The balance, as the debt portfolio has rolled in time, has logically been filled by much higher interest paying coupon debt: from a low of just 55% in early 2009, this has risen to 72% currently, or roughly $6.3 trillion. This is troubling for the Treasury as it means that due to ongoing rolling of Bill debt, there is no longer an easy way to issue "interest-free" debt. In summary, the average maturity of US Treasury debt is now 58 months from just 48 months at the end of 2008, and as Morgan Stanley points out, is directly in line with the average since 1980. The conclusion is simple: very soon what the Fed does on the front end will have increasingly less of an impact on the interest rate the US pays on its borrowings.

More obsevations from Morgan Stanley on the maturity transformation of US debt.

Slower pace seen for further extension of the average maturity of the debt. In the TBAC minutes, Colin Kim – the Direct of the Office of Debt Management – notes that while the front- and intermediate-end auction size cuts will continue, the pace of the extension of the average maturity of the debt will likely occur at a slower pace. According to our economists, these minutes seem to confirm the Treasury’s concern about cutting T-Bill issuance too much and possibly having this impact the liquidity of the front end of the curve. Exhibit 8 – top – demonstrates that the T-Bill  share of the total debt portfolio has declined to 22%, or 3% below its 25% 10-year average (or versus a pre-crisis average of 24%), which may be the source of this concern. Therefore, the notes by Colin Kim could mean that the absolute level of T-Bills may not decline further from its current $1.8 trillion level (and will only go up as the size of the debt burden grows).

Additionally, MS' Igor Cashyn muses on the future gross and net issuance of total US debt:

Gradual reduction of coupon sizes in the front to intermediate end continues. Beginning in April 2010, the Treasury steadily cut the issuance sizes of 2s and 3s (down $6B from peak), 5s (down $5B), 7s (down $3B) and 10s  (refunding down $1B – not expected to repeat). This represents a cumulative decline $232B of annualized borrowing capacity from April levels. This week’s statement reaffirmed that the Treasury will continue to decrease the coupon auction sizes at a gradual pace, and our US economists are anticipating a $1 billion cut / auction through the end of  2010 for 2s and 3s, and through September for 5s and 7s (Exhibit 5). 10s and 30s are expected to stay unchanged, and putting the issuance in the various tenors into 10y equivalents, we can see that front- to intermediate-end gross issuance will have peaked in F2010 while the back end stays high (Exhibit 6). Treasury officials indicated that once these cuts are complete, the Treasury will likely hold auction sizes constant for a period of time to assess the fiscal outlook.


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Mon, 08/09/2010 - 17:11 | 511480 mikla
mikla's picture

Not to worry.  I hear the US Government is a great place to invest.  No doubt my risk-adjusted return on investment will be far better than that which I could get from a company that actually makes stuff.

Better to just buy futures from a government that merely takes stuff.

Mon, 08/09/2010 - 17:20 | 511487 VK
VK's picture


Of course with the World's best military outfit, that's a pretty good bet. What are all those soldiers doing in the 1000+ bases around the world? The US prints and collects. The biggest stick in the yard wins.

Mon, 08/09/2010 - 17:41 | 511514 barkingbill
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collects what? the military drains from the federal budget....where is the benefit?

Mon, 08/09/2010 - 17:47 | 511518 Shameful
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Sorry, "best" is very expensive.  What are we doing using advanced guided munitions on 3rd world structures?  Using a one shot weapon that costs more then the target is a sure way to go bankrupt.  The USA isn't even efficient at killing people in the 3rd world.  And the mil supremacy won't last.  Aside from funding problems the Pentagon itself admits the VAST majority of America's youth are unfit for service.  A combination of to fat, to dumb, or to drugged out. 

Tue, 08/10/2010 - 00:14 | 512014 MrPalladium
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1.7 million persons in uniform in our armed services, nearly a million in the Army and Marines, and we could not scare up 150,000 for duty in Iraq without calling up married country boys in the national guard. Gotta wonder what the rest of the million professional soldiers were doing!

Did someone whisper welfare boondoggle?

An army of supply sergeants?

Things sure were different back when I volunteered in '69!

Mon, 08/09/2010 - 17:12 | 511482 Ragnarok
Ragnarok's picture

Extend and pretend no matter the cost.

Mon, 08/09/2010 - 20:54 | 511743 johngaltfla
johngaltfla's picture

Pretty much. And there is no QE2 tomorrow. Boy are the markets going to poop themselves....

Mon, 08/09/2010 - 17:30 | 511492 DavidPierre
DavidPierre's picture

The Fed will meet tomorrow and the expectations for an announcement of "QE2" abound.

This is the great Catch 22 of their own making. The economy has definitely weakened to the point where "bottom bouncing" which is called recovery has given way to actual further decline. The Fed said that "if the economic outlook were to worsen appreciably" that they would need to look at further stimulus.

It has and they will!

If they do not make any announcement tomorrow regarding further QE, the stock market will crater within short order. (they are already monetizing, just not in public). If they do announce further (publicly) easing, the Dollar will continue it's several month 10% decline and will enter the currency crisis phase.

They must choose their own poison in other words.

They won't allow the stock market to collapse because that is THE only thing they point to.

Allow the stock market to collapse and there will be absolutely nothing left to fool Joe-six-pack with!

If they do announce QE2 it will set the U.S. out all alone and apart from the rest of the world which has decided (was forced) that "austerity" is their necessary paths.

Remember that it was U.S. ratings agencies that put the spotlight on Europe's "weak sisters" in the first place.

Now, after the ROW has had their "sobering moment" the U.S. will be all alone and in the spotlight while pouring more alcohol in the punch bowl!

We're entering into the greatest danger zone ever for the Dollar because creditors will be watching the US "party on" with non existent interest rates and borrowing needs approaching infinity.

These two occurrences together are by definition mutually exclusive!

Maybe there is another "trick up their sleeve", if there is ...what it could be?

The logic, when it comes to what these people do, means nothing; but logic shows that a full blown currency crisis is in short order.

The world will stand for it no longer.

The "cross to the upside" in Gold looks imminent, "QE2" is just the elixir to make this happen!

Envision the scenario where the Fed steps up with their printing press raging while positions from far and wide "hit their bids" knowing that this is the last chance to move anything of size!

This "exiting capital" will need to go somewhere and commodities in general will benefit, particularly Gold and Silver.

The parabolic move that "nut cases" have believed all along would come may very well be here and now!

The Fed has their hands tied and Treasury needs to borrow more and more just to keep afloat at the same time vaults are low on physical metal and even the guy on the street is hearing of "Gold".

Imagine a more exciting AND scary time to be alive and a witness to history.

Mon, 08/09/2010 - 17:55 | 511533 Turd Ferguson
Turd Ferguson's picture

I dunno, DP.

I don't think the Fed is going to announce anything unusual tomorrow. Benny, Timmy et al are the proverbial "deer in the headlights" that TD mentioned a few weeks back. When panicked, do nothing.

The market, post 2:15 pukes along with commodities, including gold. The dollar rallies while bonds sell off. The madness continues.

Mon, 08/09/2010 - 18:43 | 511591 DavidPierre
DavidPierre's picture

The stock echo bubble...a mega moral hazard on steroids...dismissed by almost everyone as quirky, odd, and "politically incorrect".

In a moral hazard market... proceed with Great Bailout II.

All about psychology...manias, panics, and crashes...not about traditional fundamentals such as earnings... just M.O.P.E

On a knife's edge poised to rise further on a sustained belief in policy puts provided by Bernanke and Geithner and at the same time poised to crash if the credibility of those puts dissipates.

Two fat tails with little in between as a case of a bimodal distribution based on multiple market equilibria: one equilibrium based upon confidence in the alleged policy puts and the other based on loss of confidence, leaving investors to focus above all on the huge downside risks that have asserted themselves twice in the recent past.

A Con Game!

In the moral hazard echo bubble, like in all bubbles, it is psychology; not fundamentals that rule the day.

In a market removed from fundamentals technical patterns are everything.

A technically minded market chooses to focus on the Fed’s possible launch of a QE II.

Tue, 08/10/2010 - 07:26 | 512195 MarkS
MarkS's picture

I don't think that the FED does very much.  They really don't have many bullets left and the ones they do have without trying something extraordinary probably mean little to the economy and maybe only a little more to the market psychology:

1.  They can say that they expect to keep ZIRP for an extended period. - So what, we all knew that...

2.  They can cut the interest they pay banks on excess reserves. - So what, it is only 25bps now that won't make banks add what they see as risky loans....

3.  They can do more asset purchases. - Ok, that could add liquidity to the system but to whose benefit?  They have already screwed up the funding/investment cycle of the mortgage backed market and they hopefully now realize that there are unintended consequences for their actions.  They could buy more Treasuries but that just keep interest rates low it doesn't increase lending either, you can't push a rope...

So, I think that the human market participants are going to be disappointed either in the short term or not too distant intermediate term with whatever the FED does.  The computers/algos/HFT I can't really speak for...


Mon, 08/09/2010 - 17:39 | 511499 plocequ1
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Translation to all the dumb fucks like me: Go long. Google to reach $500,000 a share.

Mon, 08/09/2010 - 23:44 | 511987 whatsinaname
whatsinaname's picture

while ABK files BK ?


Mon, 08/09/2010 - 17:42 | 511515 redarrow
redarrow's picture

Excellent. I long for that day when I can put my helmet on.

Mon, 08/09/2010 - 17:42 | 511516 uno
uno's picture

they should offer a 1000 year bond, I'm sure the 'Household' and UK would jump all over that, and probably at 0.001%. 

Mon, 08/09/2010 - 17:49 | 511520 Shameful
Shameful's picture

I'm actually kinda pleased about this.  Lessens some of the monstrous roll risk.

Mon, 08/09/2010 - 17:49 | 511521 faustian bargain
faustian bargain's picture

Still wondering if China intends to take a dump...

Tue, 08/10/2010 - 01:06 | 512050 Threeggg
Threeggg's picture

Nikkei and Hang Seng cratering now ! Nikkei looked like the US markets (bot/hal) up almost 100 points at the open.

Now down over 60 points negative.

Hang Seng down over 1% and falling


When the music stops make sure you have your money

Mon, 08/09/2010 - 18:21 | 511567 Magua
Magua's picture

No worries - they begin buying long treasuries at dawn..

Mon, 08/09/2010 - 20:23 | 511712 unemployed
unemployed's picture

  Eh,  the long term rates are locked in except for the Tips.  The future change in US interest payments will depend on the yield curve and the maturities they sell in the future.   And while the public average maturity might be climbing,  the trust fund securities have gone from about 7.5 to 6.5 years in just the last 12 months.


Mon, 08/09/2010 - 20:27 | 511717 Nolsgrad
Nolsgrad's picture

This makes sense to me. Borrow short term when rates are high and borrow the longest term debt you can when rates are at all time lows.  Extending average maturity rates lessens the 'roll' risk.

Dare I say it: Perhaps HeliBen is actually making a wise decision.

Mon, 08/09/2010 - 23:47 | 511989 whatsinaname
whatsinaname's picture

heliben is the market now...

Tue, 08/10/2010 - 07:15 | 512189 dussasr
dussasr's picture

When the average duration of your debt is less than 5 years it is impossible to inflate your way out of debt becuase rising interest rates on your rolling bonds will negate the inflationary effect.  Therefore if a country was planning to inflate the first thing that it would do would be to increase the average duration as much as possible. 


If this continues it could be an obvious sign of what the government plans to do here.

Wed, 08/11/2010 - 02:44 | 514660 susiesss
susiesss's picture

HIHI ?would  you please send me the report above?

Wed, 08/11/2010 - 02:44 | 514661 susiesss
susiesss's picture

my email is
