Rising interest rates in the US cause the government to spend more money to pay interest to people who buy treasury bonds.
The US raising interest rates in the past 2 years to curb inflation has helped bond investors make a lot of money. On the contrary, the government has to spend more money to pay interest on public debt of up to 34,000 billion USD.
Statistics of Bloomberg shows that in March, the US Treasury paid 89 billion USD in bond interest. This number is equivalent to 2 million USD per minute.
This amount is forecast to increase in the near future, as the government shows no signs of reducing spending and the US Federal Reserve (Fed) hesitates to lower interest rates.
According to data from the St. Louis, the amount of money the government uses to pay interest could exceed $1,000 billion this year. This would be a record, nearly double the amount before the Fed started its 2022 rate hike.
Paper money is printed at the Bureau of Engraving and Printing in Washington (USA). Image: Reuters
The yield on 10-year US government bonds is currently about 4.5%. A few years ago, this number was around 0%, causing investors to look for risky channels for higher profits, such as stocks.
But now, they can have steady profits, from nearly risk-free assets, Business Insider identify. Investors are excited about government bonds. Assets of funds that mainly invest money in short-term securities, such as US government bonds, increased to a record 6,100 billion USD last month.
The spike in interest payments has led some analysts to believe that high interest rates are making consumption more exciting, because people have a more stable and higher income from bonds. Therefore, high interest rates are actually a platform for inflation, instead of restraining prices.
Last month, Jack Manley – global market strategist at JPMorgan said if the Fed really wants to cool inflation, they should reduce interest rates.
“I think we are in a chicken-or-the-egg situation. Inflation will be difficult to cool down significantly if house prices do not fall sharply. But for house prices to fall, the Fed must lower interest rates first,” he explained. prefer.