US Bonds Crisis

Everyone is panicking about the US bond market. Here is thirty years of data on the thing they are panicking about.  

The US 10-year is at 4.69%. Australia is at 5.05%.  

Both were routinely higher than that from 1995 to 2008. On this chart, today sits near the middle of the range, not at an extreme. The unusual period was 2009 to 2021, when money was almost free. We are not in a crisis. We are getting back to the ordinary.  

The second chart says the same thing. The term spread, the gap between 10-year bonds and the overnight cash rate, is 1.06 points in the US and 0.70 in Australia. Both sit comfortably inside their historical range and nowhere near the three-plus readings of the early 2000s.  

So if the price of money is normal, what is everyone worried about?  

The US government debt.  

When the US 10-year was last around 4.7%, in 2007, American federal debt held by the public was about 35% of GDP. It is now 101%.  

Same interest rate. Three times the debt.  

And it gets worse mechanically, without yields rising another basis point. The average rate the US actually pays across its debt is 3.44%, because so much of it was borrowed cheaply last decade. New ten-year money costs 4.7%. As the cheap debt matures and rolls over at today's rates, the interest bill climbs on its own.  

It has already gone from \$476 billion in 2022 to about a trillion dollars a year. The Congressional Budget Office expects \$2.1 trillion by 2036, and that assumes rates go nowhere from here.  

For scale, one percentage point on \$32 trillion of marketable debt is roughly \$320 billion a year.  

Australia is in a different position. Commonwealth net debt is under 20% of GDP and the rating is AAA. Our long rates get dragged along with America's regardless of our own finances, but the fiscal arithmetic here is not remotely comparable. Our problem, to the extent we have one, is at the state level.  

The bond market is not breaking. Yields are normal. The US debt is not.  

The panic is not about what money costs. It is about how much of it Washington borrowed assuming it would stay cheap.