Author: Michael Gilliard

The rollover of the federal debt: consolidation and deconsolidation

The data of the problem.

The review of the market debt reveals a troubling fact. Debt consolidation Wallickmusic he said assumes a decrease in the turnover of T. Bills (Emissions or Issues and Depreciation or Redemptions). This is what happened from January 2009 to the spring of 2010. The green and red dotted lines show that T. Notes’ emissions are increasing while T. Bills’s emissions are decreasing. This remark applies to T. Bills at 100% because of their short maturity (one year or less). It is equally valid for the emissions and depreciation of T Notes as shown by the red and orange dots.

But we must note a sudden change from April. Debt flows are no longer typical of debt in consolidation: The emissions and amortization of T. Bills are gaining importance while the issues and write-downs of T. Notes are slowing slightly. There is a divergence of consolidation efforts, thus a tendency to the deconsolidation of debt.
This problem is all the more clear since it dates from a little more than a semester. It is clearly expressed only by comparing T. Bills and T. Notes, the weak role of T. Bonds in debt financing to keep them away.

If we look at the net issuance of treasury bills, the break-up in April is exactly the same. We have indicated this break with red dots for T. Notes and blue dots for T. Bills. We have included the net issues of T. Notes, the net issuance of T-Bonds. We can see where the problem lies: the deconsolidation of the US market debt is tendentially inscribed in the evolution of its consolidation. In the summer this is a matter of relative deconsolidation, which is beginning to be seriously marked.

How to explain this deconsolidation.

The two pillars of financing the US market debt.

US debt has the particularity of being funded by three pillars that provide the foundation. Each of these pillars plays a different role in the consolidation. The Social Funds finance the Treasury through purchases of “long debt” (maturity 7-8 years), foreign investors provide the financing of the “average debt” by purchases of average duration (maturity 5-6 years), US investors prefer “short debt” (-3-4 years). Since this is the average maturity of treasury bills held, average maturities are investment dominants.

Our review of the market debt, we must study the investment trends of US and foreign investors financing the negotiable market debt of the US.

US and foreign investments in the financing of the US market debt: two causes of the relative deconsolidation of the market debt.

Clearly, these investments show that support for financing the growth of marketable debt is less and less supported by foreign investors. Since the publication of the new ICT data series of the US Treasury, we note that the financing of market debt is less and less assured by foreign investors who are on par with American investors since May 2010. Negotiable market debt has been borne equally by foreign and US investors since the spring of 2010.
We have a first reason for the deconsolidation of the federal debt. By relying more and more on the American pillar of debt, marketable debt has depended on investors favoring short-term debt: investors from the United States. This is the first reason for the increasing importance of T. Bills in the federal debt turnover and the relative decline of T. Bons and T. Bills in its financing.

If we look at the structure of foreign-owned treasury bills, we discover the second cause of deconsolidation of the federal debt. The total of foreign investors holding Treasury bills (Red), records the stagnation of foreign official investors (Treasury, the central bank, sovereign funds = blue). Yet they are the ones who make purchases of treasury bills the second pillar of US sovereign debt. They tend to reduce the importance of their T. Bills (light blue) in favor of their T. Notes and T. Bonds (green). But the stagnation of purchases by official investors is giving growing importance to private investors who have the default of not having the same purchase options. Foreign private investors, like their US counterparts, favor short-term debt. Hence the second reason for the trend towards the deconsolidation of the US federal debt.

We thus highlighted the two factors which explain why the Treasury chose in its short debt rollover to formalize T. Bills again to the detriment of the T Notes and the T. bonds. The abundance of capital ready to invest in the new issues of US treasury bills makes it possible to finance the short debt with very favorable interest rates because the coverage of the loans and Treasury auctions can only benefit. of this abundance of capital seeking safe investments in the short term.

But such a trend, reflecting investor mistrust or lassitude, should translate into higher interest rates on long-term debt (T. Notes and T Bonds). It is, therefore, necessary to examine whether our analysis is reflected in changes in interest rates on Treasury bill issues in 2010.