US Treasury Faces $50B Annual Bill from Fed Rate Hikes

Bank of America estimates that rising interest rates will increase the US government's annual T-bill interest costs by around $50 billion. This cost is due to the Treasury constantly rolling over short-term debt at market-determined rates, which immediately reprices when the Fed raises interest rates.

T-bills account for more than 20% of the total US debt portfolio and are issued in large quantities on a weekly basis. The Treasury has been issuing around $500 billion in T-bills each week.

BofA's strategists predict three 25-basis-point increases in the federal funds rate between September and December, which would push the target range to 4.25% to 4.50%. This would make it even more expensive for the Treasury to refinance its T-bill debt.