The US government is spending, and fixed income investors are demanding higher interest rates in return to lend to Uncle Sam. The recent tax reform coupled with congress raising the debt ceiling requires the US government to rebuild its cash balance. On Tuesday, the US Treasury auctioned off $179 billion of short-term debt. By historical standards, the US government is still able to borrow at low rates, but the latest auction should serve as a cautionary sign that debt payments going forward might cost the government significantly more over the approaching months and years.

At yields not seen in over 10 years, the government auctioned $51 billion of three-month bills at a yield of 1.64% and $45 billion of six-month debt yielded 1.82%. We have to go back to August 2008 to find three-month and six-month yields at this level. It’s unlikely that we’ll see significantly higher rates in the near-term, but if this trend continues we might enter a more normal interest rate environment sooner rather than later.

Sources: Federal Reserve