Trouble with the (Yield) Curve
As I’ve said before, interest rates only go from twenty percent to basically zero once in a lifetime. I’ve also discussed here my view that an interest rate shock is in store for the United States in the near future due to our overwhelming sovereign debt and fiscal mismanagement. So what I don’t understand is why the duration of the U.S. debt portfolio is around seven years.
If you look at the Treasury.gov website, you will see that Treasury does not attempt to time the market and this reduces the government’s borrowing costs over time. Of course that makes sense if interest rates are mid-single digits or higher. But come on, earlier this year the 30yr hit 2.75%. In mid 2012, the long bond was at 2.5%. Could the yield on the thirty year bond of the United States go any lower? Why didn’t Treasury back up the truck at these levels? We are still seeing our long term debt at less than 4%. Could it be there is another reason?
Is it possible that Treasury wanted to keep interest rates as low as possible to keep borrowing costs as low as possible? So the budget deficit looked as low as possible prior to an election? This means instead of locking in artificially low long term rates for our $17 trillion debt, the government used short term financing to fund the government. There was another firm that comes to mind who did the same thing: The name was Lehman Brothers.
So if I am right, we could see mid-single digit yields on the long bond in the foreseeable future. How is the United States going to service a debt load on its way to $30 trillion in the next decade? It sure would have been nice to be paying 2.5%.
Born in Georgia and raised in Savannah, Todd spent his early summers in Carp Lake, Michigan listening to the vivid stories of his grandparents recalling their youth in the northern wilderness. Ever since his earliest days, he loved story telling.
Todd left Savannah in 1982 to attend the U.S. Air Force Academy in Colorado Springs, CO where he studied aeronautical engineering. Upon graduation in 1986, he immediately left the Academy for flight school. His initial assignment was flying Combat Search and Rescue helicopters at Elmendorf Air Force Base in Anchorage, Alaska. In the UHAE (Unique Harsh Arctic Environment-pronounced “Yoo Hay” by Alaskans) he flew local rescue missions and was also deployed throughout Asia. During this time he was credited with saving many lives and even more assists. In addition to flying exciting missions, Todd also managed to graduate from the University of Alaska Anchorage with an M.S. in Engineering Management. In 1990 he volunteered for Special Operations and went back to flight school. In 1991 he was assigned to the 20th Special Operations Squadron at Hurlburt Field, FL, flying MH-53J Pave Low helicopters. Immediately he was deployed to Kuwait. Over the next three years he was active in classified missions in support of counterterrorism under the control of the National Command Authority and deployed throughout the world. His customers included SEAL Team Six and Delta Force. He left the Air Force as a Captain in 1994. During this hectic period in his life he found time to write his first novel, The Ultimate Solution which was never published. He did publish an article in the Armed Force’s Journal in 1994 on Special Operations Aviation.
1994 found Todd joining an investment bank and earning a chance to expand his knowledge of his other passion, Finance. During this second career he became highly knowledgeable in Emerging Markets Fixed Income and traveled a great deal internationally with a focus on the Caribbean. He has conducted business in over forty different countries. He became acutely aware of the consequences of economic decisions and their effect on national and economic security.
However, Todd.’s love of storytelling was uncontrollable. He left the financial business in 2011 to write. Currency was published in December of that year. Once he began typing, he never stopped.
Todd lives on a three-hundred year old farm in Connecticut deeded by King George of England with his children.