Is the U.S. Running Out of Lenders?

All right.

The Treasury.

This is honestly a very interesting story, but I first want to set the scene a little bit.

So We all know that the US is in a horrific amount of debt.

In fact, it's now over $40 trillion.

And the reason this keeps getting worse is that the US is stuck in a deficit, right? The government spends way more each year than it collects.

So it has to borrow to cover the shortfall.

It does this by selling treasury bonds.

These are essentially IOUs issued by the US government.

You lend Washington money today, and in return, the government promises to pay back with a return.

Now, there are all sorts of different government bonds you can buy with varying interest rates.

For example, the three-month T-bill will give you around a 3.85% annual yield at the time of recording, whereas the 30-year treasury will give you around a 5.2% annual yield.

You know, that makes sense.

If I'm lending the government my money for 30 years instead of three months, I'm taking a lot more risk around inflation and interest rates, so I'm going to want to be compensated for it.

And right now, investors are demanding a lot of compensation.

For example, the 10-year treasury bond, which dictates things like 30-year mortgage rates, has risen from 0.5% in 2020 to now 4.8% in 2026. this is the highest we've seen these rates in literally decades but this is obviously bad for the us government who has to pay that interest rate on their newly issued long-term bonds in 2020 they barely had to pay out any interest on the new 10-year bonds now they have to pay a whopping 4.8 and here's where that problem compounds the us doesn't just have to finance each year's new deficit It, of course, also has the trillions of dollars of existing debt that's constantly maturing.

And governments will normally just refinance that debt by, you guessed it, issuing new treasuries.

But today, a lot of that debt that was originally issued when rates were extremely low is being replaced with debt carrying much higher interest rates.

And this chart here is the perfect representation of what's happened to the average interest rate on all US debt and the massive lump sum of interest that needs to be paid back on it over time.

In 2020, the average interest rate was 1.77%, today it's 3.49%.

And with old debts being refinanced at these higher rates across the board, plus new debts being taken on thanks to the deficit, this means that the country's annual interest payments have ballooned from $523 billion to around $1.3 trillion.

As you can see, this is a very painful spot for the US government to be in.

It smells like a little bit of a debt trap and investors are demanding high rates of return to be buyers of long term US treasuries.

There are a few reasons for this, but they really boil down to inflation, supply and uncertainty.

On the inflation front, inflation had been pretty stable up until the start of this year, but this year it has started rising again.