Last week, we discussed the fact that credit default swap spreads for sovereign nations are becoming completely detached from their historical averages. In that piece, we highlighted that rapidly rising rates will begin to have a material effect on the interest payments on sovereign debt.
Our friend Lawrence Lepard did some rough calculations on the exact impact this type of high-rate environment will have on the amount of money the U.S. government will owe their counterparts in interest payments if rates continue to rise. At this rate, interest payments will be about 3.5 times what they were in 2020. Of course, this won’t happen right away as a lot of these Treasurys need to mature. However, if you take a look at the maturity calendar, a considerable amount of these Treasurys are due to mature over the next two years.