Interest expenses are a significant burden on the U.S. budget, accounting for over 10% of all budget expenditures.
Many people misinterpret the data published in the media regarding the $1 trillion in interest expenses, as well as the $33.5 trillion U.S. national debt.
Different Types of Treasury Securities
The current market debt stands at "only" $26 trillion, with $5.4 trillion in bills, $13.75 trillion in notes, $4.3 trillion in bonds, nearly $2 trillion in TIPS (Treasury Inflation-Protected Securities), and approximately $0.6 trillion in FRNs (Floating Rate Notes). The remaining debt consists primarily of intra-state debt between state governments and does not extend beyond state boundaries.
Interest Expenses in Detail
The gross interest expense for all market debt is $776 billion, while the net interest expense is $632 billion for FY 2023, covering the period from October 1, 2022, to September 30, 2023.
According to the U.S. Treasury Department's calculations, $283 billion of interest expense is associated with bills, $289 billion with notes, $129 billion with bonds, and $75 billion with all other types of treasuries, mainly inflation-linked TIPS.
Interest expense on notes accounts for 37% of all interest expense, reaching an all-time high in terms of spending. To provide a comparison, exactly two years ago in September 2021, bills constituted only 0.6% (or $2 billion) of the total interest expense, which amounted to $321 billion.
At this point, nearly all of the $5.4 trillion in note debt has been refinanced during the high-rate era that began in October 2022, with weighted average rates at 5.38%.
Weighted average note rates have risen to 2.11%, up from 1.59% in September 2022 and 1.45% in September 2021, marking a significant increase given the substantial debt load of nearly $14 trillion.
In contrast, weighted average bond rates remain unchanged at 3.05%, compared to 3% a year ago and 3.12% two years ago. This is primarily due to the limited volume of bond offerings, which amounted to only $0.5 trillion compared to $3.5 trillion in notes since September 2022, with mid-2023 experiencing a period of low rates on long treasuries.
The U.S. Treasury Department has borrowed almost nothing in notes since August 2022 and has made minimal placements in bonds, with nearly 90% of net placements occurring in bills.
Conclusion
In conclusion, interest expenses pose a significant challenge to the U.S. budget, consuming more than 10% of all budget expenditures. It is crucial for individuals and policymakers to accurately interpret the data related to the $1 trillion in interest expenses and the $33.5 trillion U.S. national debt.