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Comment by vwarner1411 | Hacker News Reader

Can someone ELI5 what this means?

The US Government spends more money than it takes in taxes. In order to finance the difference it takes out loans (in many ways just like you might take out a loan to buy something). These loans take the form of government bonds.

Various people/organizations buy these bonds and give the US government money. Later on these bonds "mature" and those people get their money back plus some interest.

This post is saying that about 9 trillion dollars worth of these bonds will mature in the next 4 years so the US government will need to come up with that much money to pay the bondholders. The way the government does this (for the most part) is by "rolling over" the debt. This means the government will issue new bonds that pay out at some point in the future.

In some ways this is actually great for the government because interest rates are at very low levels right now, which means the new bonds will (in most cases) have a lower interest rate than the old ones.

>In some ways this is actually great for the government because interest rates are at very low levels right now...

Just what I came here to mention. The debt that matures will almost certainly have had a higher interest rate than whatever the amalgamated rollover rate will be.

So right now the yield curve is inverted. This means the demand for medium term government bonds is high, so their interest rate is low (lower than short term).

https://www.gurufocus.com/yield_curve.php

Historically this means a recession is coming. The reason is that investors are thinking that other investment options are not good, so they are parking their money in safe bonds.

Anyway, this is good for government dept I guess.

Government dept is held mostly in short term, so the percentage of government spending used to service dept is very quickly tied to interest rates. Things can go bad fast if interest rates go up.

One buyer, in particular, most likely will stop buying and that is China.

Maybe, but China only holds about USD1T in US bonds. With the majority of that not maturing in the next four years.

China has fluctuated between being a net buyer and net seller recently (https://ticdata.treasury.gov/Publish/mfh.txt)

If China stops buying then they'll lose their competitive advantage compared to regional neighbours with the US.

when you have sovereign-nation-levels of wealth, there aren't many other sane places to park your money.

Have they made that threat?

Not to my knowledge, its all just speculation.

Also keep in mind that right now, debt is often monatory creation. If this debt is reimbursed, it might slow the economy and might create a deflation and push the growth of GPD to th negative (GPD is a bad indicator, but for stuff like that it is quite usefull). Its not likely, but still, people often forget that debt is good for our current economies.

That's extremely difficult to explain for many, many reasons.

Ignoring a great deal, basically that debt either needs to be paid off when it matures or rolled over into bonds e.g. issuing debt to receive cash that can be used in paying off those bonds.

Now, how that will affect the USD is where things get complicated. Will a higher interest rate be needed on new financing to attract investors? Will the Treasury have cash on hand to cover paying off all of those?

Assume they goto the market to refinance all of those bonds and have to pay a higher interest rate: this means tax payers have to pay more taxes, and get less services because more of their money is going to interest payments on this debt. Or perhaps they can only find investors willing to buy 8 trillion in new bonds, then that means the budget needs to cut out 1 trillion for that year in services, just to give a couple ways how this could play out.

Everyone has their own idea of what will happen and will speculate accordingly. Some might think interest rates will explode, of the Fed might cut. Maybe Foreign flows will not be reinvested and affect the USD accordingly. Etc, etc, etc...

Interest rates will go up.

I mean, maybe. But historically speaking that hasn't necessarily been the case.

for what? mortgages? car loans? what else?

US Treasuries are considered the safest types of bonds (confining our discussion only to the US bond market). They are backed by the full taxation power of the US government and so are extraordinarily unlikely to default.

In that sense, they set the "risk-free rate of return" by which other investments are baselined. Not happy with the 2.5% (or whatever) on a Treasury? Well, you might want to invest in a state/municipal bond, or a company's bond offering, mortgage-backed-securities, or stocks. You would only invest in those riskier investments if they promised to pay you a rate higher than the "risk-free" rate of Treasuries.

In that regard, rising Treasury rates increase the market-clearing interest rates on any borrowing which is considered riskier than the US government's likelihood of non-payment, so in short, on all other sorts of borrowing. (On fringes, this may not be the case where statutory limits apply, such as on credit-card default rates. If the risk-free rate rises high enough though, such lending might be curtailed in favor of simply moving down the risk ladder if the returns become artificially compressed.)

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