Morning Briefing: Drei Gründe, warum die Märkte Schulden nun höher bepreisen

Guten Morgen, in Donald Trump's second term he has spoken of "outrageous government spending" which he will curb. Instead, he has reached the opposite outcome - and this poses a risk to financial markets. The US now owes a total of 40 trillion dollars, with a debt-to-GDP ratio of 123 percent, up from 65 percent in 2007. The US government will pay 1 trillion dollars in interest on this debt alone this year, more than what is spent on defense.

Trump already added 7.8 trillion dollars in debt during his first term, a record in absolute terms for any US president. Trump's penchant for borrowing is not new or unique. His successor and predecessor, Joe Biden, had little in common with the Swabian hausfrau. Internationally, Trump is in good company. However, what makes his debt policy uniquely risky is its financing structure.

22 percent of US government debt, and thus historically and internationally unprecedentedly much, has been issued by the Treasury Department in the form of short-term bonds, known as T-Bills. These run for one month to one year and earn 3.7 to 4.0 percent, compared to 4.7 percent for ten-year Treasuries and over five percent for thirty-year bonds.

The advantage is deceptive: as interest rates rise, the Treasury must refinance more expensively. And T-Bills tie up bank balances, providing a buffer that banks need to fund other transactions. To avoid liquidity crises, the Fed must step in, indirectly forcing the central bank to buy, which the market does not want.