Bank of America estimates $50B rise in T-bill interest costs from Fed rate hikes

1 hour ago 1



Bank of America has put a number on what the US government’s addiction to short-term borrowing actually costs when rates go up: roughly $50 billion in additional annual interest payments on outstanding Treasury bills. T-bills mature quickly, often in weeks or months, which means the Treasury is constantly rolling them over at whatever rate the market demands. When the Fed raises rates, those costs reprice almost immediately, unlike longer-duration bonds that lock in yesterday’s lower yields for years. The refinancing treadmill T-bills account for over 20% of the total US debt portfolio, according to BofA’s analysis. The Treasury has been issuing roughly $500 billion in T-bills on a weekly basis. Every time a batch of T-bills matures, the Treasury has to reissue at current market rates. In a rising-rate environment, each refinancing cycle gets incrementally more expensive. The $50 billion figure BofA cites represents the incremental annual cost that materializes when the Fed tightens policy. It’s not a one-time hit. It’s a recurring charge that compounds with every additional hike. Three hikes on the horizon BofA’s strategists are forecasting three 25-basis-point increases in the fe...

Read Entire Article