The United States needs to borrow ~$1.5 trillion a year these days to fund its deficit. And the concern among most deficit hawks is that the cost of that borrowing will rise as the economy comes back to life and inflation fears mount.

So far, rates have remained stubbornly low. The Treasury is now trying to move its borrowing "out the curve," however--borrowing money for longer periods to lessen the risk of a short rate increase--and yesterday's Treasury auction didn't go well: Specifically, lenders demanded higher than expected interest rates for their money.

The Fed, meanwhile, is stuck keeping short rates at near zero to quietly recapitalize the banks. This combination has made the yield curve steeper than at any time in the past 29 years.

Bloomberg: Treasuries declined [on Friday], with the yield gap between Treasury 2-year notes and 30-year bonds reaching the widest since at least 1980 amid lower-than-forecast demand for the $74 billion in notes and bonds auctioned in the week.

Treasury 10-year notes fell for a second consecutive week as reports showed consumer confidence and retail sales rose more than forecast...

“We had sloppy 10- and 30-year auctions at time when there are less people in the market,” said Larry Milstein, managing director in New York of government and agency debt trading at RW Pressprich & Co., a fixed-income broker and dealer for institutional investors. “The short end is locked in by the Fed and the long end is starting to see pressure from supply. Also, consumers are seeing some positive signs.”

The spread between 2- and 30-year Treasuries reached 374 basis points on Dec. 10, the most in 29 years, as the U.S. sold $13 billion of the so-called long bonds in the last of the week’s auctions.

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See Also:

Brace For Hyperinflation

Brace For Hyperinflation 2

Brace For Hyperinflation 3