Wednesday, April 18, 2012

Treasuries Outstanding by Maturity

Since the Fed started operation twist in September of last year, it has purchased more than $300B worth of longer term government securities.  In the same time period, the amount of publicly traded US government debt has increased by $700B.  Considering that 10 year yields have also fallen by almost 100bps since operation twist was first anticipated by the markets, one would think that Treasury would take advantage of these lower yields to push out the maturity of its obligations.  Unfortunately, the average maturity has contracted over the last 6 months though.  Treasury Bills as a percentage of total outstanding has increased from 15.4% to 16.2%.

Percentage of Treasury Obligations Outstanding By Maturity

The Federal Government has $1.67T worth of debt that needs to be rolled annually, which creates considerable refinancing risk for the US government.  

The reason that most argue that the US government can never default on its debt is that the Fed has a printing press and therefore an unlimited supply of money to buy Treasury debt.  As it currently stands (partially because of operation twist) the Fed owns 6% of short term maturity bills, but holds 16% of all maturities.  If there were a European-like buyer's strike on US government bonds, the Fed's balance sheet could have to expand by another $1.6T+ to absorb the short term maturities.

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