CDZ Why Dont We Refinance America's Debt?

[JimBowie1958]

With interest rates so low due to everyone in the world trying to buy US bonds, why dont we call in the old bonds and refinance them?

I dont find any discussion of this anywhere.

Why cant we do that?

 

[Toddsterpatriot]

With interest rates so low due to everyone in the world trying to buy US bonds, why dont we call in the old bonds and refinance them?

I dont find any discussion of this anywhere.

Why cant we do that?

why dont we call in the old bonds and refinance them?

US Treasury bonds don't have a call feature.

 

[my2¢]

Makes sense but on quick research on whether US bonds are callable I learned that they are not. Thus the government cannot redeem existing bonds early.

https://www.sapling.com/7796395/treasury-bonds-callable

(Article also points out that because callable bonds are less desirable, the government would have had to pay buyers a higher interest rate back when bonds were issued.)

 

[JimBowie1958]

Makes sense but on quick research on whether US bonds are callable I learned that they are not. Thus the government cannot redeem existing bonds early.

https://www.sapling.com/7796395/treasury-bonds-callable

(Article also points out that because callable bonds are less desirable, the government would have had to pay buyers a higher interest rate back when bonds were issued.)

The Federal Reserve could offer a mark up on the price then. In the long run refinanced bonds are a huge savings if done now.

 

[Toddsterpatriot]

Makes sense but on quick research on whether US bonds are callable I learned that they are not. Thus the government cannot redeem existing bonds early.

https://www.sapling.com/7796395/treasury-bonds-callable

(Article also points out that because callable bonds are less desirable, the government would have had to pay buyers a higher interest rate back when bonds were issued.)

The Federal Reserve could offer a mark up on the price then. In the long run refinanced bonds are a huge savings if done now.

In the long run refinanced bonds are a huge savings if done now.

Not when you take the premium into account.

 

[justinacolmena]

why dont we call in the old bonds and refinance them?

US Treasury bonds don't have a call feature.

"We?" Are the Feds posting here?

The bonds may not be callable, but I don't suppose there is any kind of indenture beyond the "full faith and credit" of the U.S. that would prohibit repurchasing the bonds on the open market via a committee of sorts.

Congress is in control of both spending and revenue. The Federal Reserve and Treasury borrow at auction what they need to finance the debt and no more.

Unless Congress raises taxes and/or reduces spending, why would the FOMC or other government banking agencies engage in any significant repurchasing of bonds, only to reissue as new series?

 

[Toddsterpatriot]

why dont we call in the old bonds and refinance them?

US Treasury bonds don't have a call feature.

"We?" Are the Feds posting here?

The bonds may not be callable, but I don't suppose there is any kind of indenture beyond the "full faith and credit" of the U.S. that would prohibit repurchasing the bonds on the open market via a committee of sorts.

Congress is in control of both spending and revenue. The Federal Reserve and Treasury borrow at auction what they need to finance the debt and no more.

Unless Congress raises taxes and/or reduces spending, why would the FOMC or other government banking agencies engage in any significant repurchasing of bonds, only to reissue as new series?

The bonds may not be callable,

Why do you feel buying them back at a premium saves any money?

The Federal Reserve and Treasury borrow at auction what they need to finance the debt and no more.

Why would the Fed borrow?

 

[JimBowie1958]

Unless Congress raises taxes and/or reduces spending, why would the FOMC or other government banking agencies engage in any significant repurchasing of bonds, only to reissue as new series?

The Federal Reserve has a lot of power and authority to do this since technically they issued the bonds, right?

The point of buying the bonds then issuing new lower interest rate bonds would be to shift the bonds to lower interest rates and cut the required payment on the debt.

 

[my2¢]

It comes down to the government having to pay a premium price to buy back existing non-callable bonds and then needing to offer higher-than-current interest rates on the new callable bonds to be sold. But the biggest factor is that the loaner, not the borrower, is in the drivers seat. If investors lose trust of the government's faithfulness the cost of servicing our debt would increase immensely.

 

[Toddsterpatriot]

Unless Congress raises taxes and/or reduces spending, why would the FOMC or other government banking agencies engage in any significant repurchasing of bonds, only to reissue as new series?

The Federal Reserve has a lot of power and authority to do this since technically they issued the bonds, right?

The point of buying the bonds then issuing new lower interest rate bonds would be to shift the bonds to lower interest rates and cut the required payment on the debt.

The Federal Reserve has a lot of power and authority to do this since technically they issued the bonds, right?

The Treasury sells the bonds.

The point of buying the bonds then issuing new lower interest rate bonds would be to shift the bonds to lower interest rates and cut the required payment on the debt.

The point is, it wouldn't cut the interest paid on the debt.

 

[JimBowie1958]

It comes down to the government having to pay a premium price to buy back existing non-callable bonds and then needing to offer higher-than-current interest rates on the new callable bonds to be sold. But the biggest factor is that the loaner, not the borrower, is in the drivers seat. If investors lose trust of the government's faithfulness the cost of servicing our debt would increase immensely.

Then dont make the new bonds callable. Just get the new bonds to lower interest rates, maybe even negative rates these days.

 

[Toddsterpatriot]

It comes down to the government having to pay a premium price to buy back existing non-callable bonds and then needing to offer higher-than-current interest rates on the new callable bonds to be sold. But the biggest factor is that the loaner, not the borrower, is in the drivers seat. If investors lose trust of the government's faithfulness the cost of servicing our debt would increase immensely.

Then dont make the new bonds callable. Just get the new bonds to lower interest rates, maybe even negative rates these days.

They'll be issuing lots of new bonds at the lower rates.
Won't do a thing to lower the interest paid on the already outstanding bonds.

 

[sparky]

Why cant we do that?

Natural Citizen, G5000 , Mr Beale ,along with a number of high profile posters have all written at length about this Jim

About all my pointy little farmboy head gets is, one just can't create valuation out of thin air forever

Not much help, sorry

~S~

 

[EdwardBaiamonte]

The Federal Reserve could offer a mark up on the price then. In the long run refinanced bonds are a huge savings if done now.

won't work, the cost of the mark up would have to equalize the the difference in interest on old high interest bonds and current low interest rates.

 

[EdwardBaiamonte]

The Federal Reserve could offer a mark up on the price then.

Don't think they have the authority even in 13(3)

 

[my2¢]

It comes down to the government having to pay a premium price to buy back existing non-callable bonds and then needing to offer higher-than-current interest rates on the new callable bonds to be sold. But the biggest factor is that the loaner, not the borrower, is in the drivers seat. If investors lose trust of the government's faithfulness the cost of servicing our debt would increase immensely.

Then dont make the new bonds callable. Just get the new bonds to lower interest rates, maybe even negative rates these days.

I see that as totally unrealistic. It is the lenders that will be setting the interest rates through their bids for these new government bonds. I cant's see lenders paying a premium for a non-callable feature when the government has just shown it isn't something they'll honor. Nor call I see lenders paying the government to hold their money.

 

[JimBowie1958]

I see that as totally unrealistic. It is the lenders that will be setting the interest rates through their bids for these new government bonds. I cant's see lenders paying a premium for a non-callable feature when the government has just shown it isn't something they'll honor. Nor call I see lenders paying the government to hold their money.

lol, so what do you think about NEGATIVE interest rate bonds?

 

[JimBowie1958]

The Federal Reserve could offer a mark up on the price then. In the long run refinanced bonds are a huge savings if done now.

won't work, the cost of the mark up would have to equalize the the difference in interest on old high interest bonds and current low interest rates.

Clinton did something like this, though he used low interest bills in place of bonds. if I recall correctly.