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A Third of the Debt Resets Within a Year
Tuesday decides which party writes the next budgets. Wednesday shows how the Treasury will pay for the bills already run up. For your money, Wednesday may matter more. Interest on the debt cost about $1.05 trillion in the fiscal year that ended in September, per Treasury data. That is more than the $965 billion spent on defense. The average rate Washington pays on the debt it sells to investors rose to 3.52% in September, from 3.41% a year earlier. A six-month Treasury bill paid 4.36% at last Monday’s auction. Each time an older, cheaper loan comes due and is refinanced at today’s rates, the average creeps up. And Washington refinances constantly.
Bills are Treasury IOUs that mature within a year. They made up 22.4% of that debt at the end of September, per the Treasury’s monthly debt statement. In its latest review, the Government Accountability Office counted about a third of it coming due within a year. None of that is on Tuesday’s ballot. Neither party’s win changes the size of the debt, or the fact that it is owed in dollars. Every Treasury bill your money fund holds is a promise paid in those dollars. Some of the bolder voices in finance argue the bigger change to the dollar is already under way. In their telling, it runs through executive orders and federal stakes in miners such as MP Materials and Lithium Americas.
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The lender. So who lends Washington all that short-term money? If you keep cash in a money market fund, increasingly you do. Those funds held $7.90 trillion in the week to Oct. 28, per the Investment Company Institute. About $3.11 trillion sat in funds sold to individuals. In August, the funds held $3.48 trillion of Treasury debt, nearly half of everything they own, ICI data show. JPMorgan estimates they absorbed about 84% of the new bills sold to private buyers that month.
That makes your cash a fast-moving lender. A fund full of bills that mature in weeks resets its yield almost as fast as interest rates move.
The reset. The Fed enters here. It held its target at 3.75% to 4.00% last Wednesday, with two officials voting for a hike. Futures still put a December increase at about 70%. When most of the debt was locked in for years, a hike mostly squeezed borrowers. With a third of it resetting within a year, a hike also moves real money from the Treasury to savers within months.
So the Fed’s brake, a rate hike, now comes with a check attached. Washington signs it.
Run the math both ways. On $100,000 in a money fund, a quarter-point hike adds about $250 a year in interest. Washington pays the same quarter point on the third of its debt that comes due within a year. Once that debt rolls over, the extra cost runs above $20 billion a year.
No Congress votes on that line each year. Interest is paid automatically. Both parties built up the debt behind it over decades. The Congressional Budget Office projects it rising from about 14% of federal spending last fiscal year to nearly 15% by 2028. The usual fixes, spending cuts or tax increases, take years and a lot of votes. That gap between the math and the calendar is why talk of a faster shortcut keeps surfacing.
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Wednesday’s sentence. The refunding statement usually changes by only a few words. This time the words matter. Quarter after quarter, the Treasury has promised to keep its longer-term debt sales steady “for at least the next several quarters.” The big bond dealers who advise it said in August that they expect sizes to rise sometime in 2027. They also expect that promise to change several quarters ahead. By their median forecast, today’s sale sizes would leave $1.45 trillion of borrowing for fiscal 2027 and 2028 unfunded.
If the phrase changes Wednesday, more 10- and 30-year debt is on the way. Those maturities steer mortgage rates. The 10-year yield fell 0.36 point in October to about 4.93%, its biggest monthly drop since December 2023. The 30-year mortgage averaged 7.24% last week, per Freddie Mac. More supply could push those yields, and mortgage rates, back up.
Where that leaves you. Your savings may sit on both sides of this week. Cash in the largest money funds earns about 3.75%, and that rate rises if the Fed hikes. An intermediate bond fund holds longer debt yielding nearer 5%, and its price moves with Wednesday’s supply news. Neither is a mistake.
Over thirty years, I watched several bond-supply scares come and go. The investors who got hurt usually learned what they owned on the day it moved. It is worth knowing which side of Washington’s borrowing your money sits on. This week, the Treasury decides how much it leans on short-term bills versus longer bonds.
Today’s table says how much Washington will borrow. Wednesday’s statement says for how long. Friday’s jobs report sets the odds on what Washington’s shortest loans cost in December, and what your cash account earns.
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