Cuts to government spending mean fewer bonds, lower borrowing costs, and potentially a break for borrowers.
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The10-yearinterestratehasfallenbyhalfapercentagepointinthepastmonth—fromapproximately4.8percentto4.3percent.Severalfactorsdetermineinterestrates,includinginflationandeconomicgrowth,butperhapsthemostconsequentialisthesupplyofanddemandforgovernmentbonds.
IftheDepartmentofGovernmentEfficiency(DOGE)continuesatitscurrentpace—whichaccordingtoitswebsiteincludesapproximately$52billionincutstodate—itcouldpossiblycut$1trillioninspendinginitsfirstyear.Thiswillmean$1trillionfewerbondsbeingissued,reducingtheoverallbondsupply.Alowersupplydrivesthebondpricehigher,andbecausebondpricesmoveinverselytointerestrates,thiswillresultinmateriallylowerinterestrates.Thisshiftisalreadybeingreflectedinthebondmarket.
Governmentborrowing“crowdsout”privateborrowing—aconceptfamiliartoanyonewhohastakenahighschooleconomicsclass.Essentially,thegovernmentgetstoborrowfirst,intheformoftreasurybonds,andyo
