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It’s been 25 years this month since the Treasury announced it would stop selling 30-year bonds.
Washington had just run its fourth straight budget surplus, and projections at the time had the public debt paid off within a few years. “We do not need the 30-year bond,” Treasury’s Peter Fisher said, explaining that it didn’t fit the government’s borrowing needs now or for years to come.
The long bond came back in 2006. And this year, Washington ran a $2 trillion deficit.
That’s how much more the government spent than it took in for the fiscal year that ended September 30, according to the Congressional Budget Office. It’s $218 billion more than last year. Spending grew 6% while revenue only grew 3%.
And our politicians continue to want to give money away. In September, the White House floated $5,000 “dividend checks” for American adults, which Axios estimates would cost about $1.3 trillion.
What are these people thinking? It blows my mind. It couldn’t be a more blatant bribe.
Put it this way… knock eight zeros off the federal budget and here’s your borrower: He brings home $54,000 a year and spends $74,000. He already owes $324,000, his interest bill just jumped 11%, and he wants to hand out $13,000 he doesn’t have. Now he’s asking you for a 30-year loan… you giving to him?
I’ll pass.
Every dollar the government borrows comes with interest. That bill rose $115 billion last year, or 11%, and it’s now the second-largest thing Washington spends money on, behind only Social Security.
The debt held by the public, the money the government owes to investors, climbed $2.3 trillion in one year to $32.4 trillion. That’s about the size of the entire U.S. economy.
To cover the gap, the Treasury has to keep selling bonds, and the more it sells, the more it has to pay to find buyers. That’s why the long-term prospects for rates look pretty abysmal to me.
The short term isn’t much better. Producer prices jumped 1.3% in September, the biggest monthly increase since March 2022. Much higher PPI will put pressure on the Fed to raise rates again.
As of October 13, the 30-year Treasury paid 5.56% and the 10-year paid 5.21%, according to the Federal Reserve. So you’re being offered 35 basis points, or about a third of a percentage point, to hand your money to a government that keeps borrowing more for an extra 20 years.
I wouldn’t go past 10 years. When it comes to 30, there’s just too much risk involved.
When rates rise, bond prices fall, and the longer a bond has until it comes due, the harder it falls.
If you buy the 30-year and rates keep climbing, you’re holding the bond that gets hit the hardest.
I’ve been buying short- to medium-term fixed income, plus muni bonds, using a laddered strategy. A ladder means you buy bonds that come due in different years, so cash keeps coming back to you and you can put it to work at whatever rates are offered then.
Munis are bonds from states and cities, and most of their interest is free from federal income tax. The trend for rates is higher in the short term, absent an end to the war, and a ladder lets me keep adding as they climb.
If the economy falls into a deep recession, long-term rates could drop fast, and the 30-year would rally the most. I’ve said before that if rates go to 6% or 7%, we’ll be in such a deep recession that there’ll be no choice but to print more money and push rates back down.
I’m still not locking up my safe money for 30 years to bet on that.
Look up the average maturity of any bond fund you own. It’s listed on the fund’s website. If it runs well past 10 years, you’re carrying the risk Washington keeps piling on.
In The War Room, I’m laddering short- and medium-term fixed income and munis right now.
