Tuesday , 5 December 2023

Foreigners Beware: U.S. Treasury Maturity Dates are Alarming (+2K Views)

While many investors want to believe that U.S. treasuries are a safe haven, I will use this article to debunk that myth with plain hard evidence…[to support my contention that] holding U.S. bonds is the worst investment going forward. Words: 500

So says Katchum (http://katchum.blogspot.ca) in edited excerpts from his original article*.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.

Katchum goes on to say, in part:

U.S. Treasury Debt by Year of Maturity

A look at the debt maturity graph below (chart 1) tells us that most of the U.S. debt is short term debt payable within 5 years. The scary part is that it is such a huge amount (approx. 2.5 trillion U.S. dollars)….Even more scary is that the U.S. treasury is not transparent about its debt maturity report. Chart 1 was published in February 2010 and hasn’t been updated since then. Also, Ben Bernanke is allegedly trying to make us believe that most of the debt is long term, which it is not (source: Ben Bernanke at Fed meeting on 7 June 2012).

Chart 1: U.S. Treasury Debt by Year of Maturity

Fed Holdings of U.S. Treasurys by Years of Maturity

At end of June 2011, foreign holdings of short term debt (less than 1 year) was 881 billion dollars amounting to 87% of the total (the Fed holding the balance)….This is the most crucial and important debt…[because] interest rates…rise….when a country is in a default…[that is,] short-term debt securities have higher yields than long-term debt securities….[Because of that fact] Marc Faber…[is of the opinion] that one day foreigners invested in U.S. debt will not be paid back. They are holding all the short term debt, while the Fed is holding the long term debt.

Chart 2: Fed Holdings of U.S. Treasuries (billion US dollar)

Average Maturity Date of Treasury Debt

Let us now take a look at the average maturity date of the debt portfolio (Chart 3). It tells us that the U.S. was in real trouble during the financial crisis of 2008, where debt maturity hit an all time low of 4 years. Imminent default was looming in that period. Today, the average debt maturity has risen to a high of 5 years [63.9 months to be exact], but it is still very low compared to other countries.

Chart 3: Average Treasury maturities

Comparison of Average Maturity of Debt in Years by Country

The United states has one of the lowest average debt maturities of the countries in the Organization of Economic Cooperation and Development (OECD) (Chart 4). Even Greece has a higher maturity of 8 years according to the Debt Management Office. Low maturity increases the risk of default, because there is less time to roll over the debt.

Chart 4: Average Maturity of Domestic Debt in Years (OECD)

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When you add to the above facts that treasury yields are at a 30 year low today you’ve got all the evidence of a bond bubble in the United States. It is difficult to know exactly when the bond market will collapse, but…[it will so] just stay out of it.

*http://katchum.blogspot.ca/2012/06/analysis-of-us-treasury-maturities.html  (To access the above article please copy the URL and paste it into your browser.)

Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

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