Much has been made of the C-suite’s falling interest burden, a trend that accelerated in 2020 and 2021, when companies took advantage of the Fed’s explicit backstop for corporate credit and record-low rates to lock-in and term-out.

Even more’s been made of the US government’s rising interest burden, attributable to higher rates in the post-pandemic macro-policy environment.

The former phenomenon (the collapse in corporate America’s interest payments as a share of, for example, economic profits) goes a very long way towards explaining why profit margins remain so high and credit spreads so tight (i.e., inside 90bps for IG and inside 275bps for high yield).

There’s the chart. You’ve seen it before. Or some of you have, anyway. I updated it. It’s current through Q3 2024 reporting season.

Note that the dramatic, post-pandemic decline in corporate interest burdens played out as rates on corporate cash piles rose to multi-decade highs. That’s a pretty sweet deal, particularly for blue-chips, which borrowed fixed at rock-bottom rates in 2020/2021, then saw the variable rate on that borrowed cash rise inexorably in 2022 and 2023.

The chart on the left, below, from SocGen’s derivatives strategy team, is worth highlighting. Even in the high yield space, where the maturity wall’s typically steeper, 40% of the index is still comprised of 2020/2021 issues.

The figure on the right plots Fed funds on a six-quarter lead with interest costs. The relationship’s pretty tight, and as the chart header notes, it suggests corporate interest burdens are set to move higher starting… well, starting “yesterday,” if you will.

That’s the corporate side. On the government side, a lot depends on Donald Trump’s fiscal agenda, which’ll require Scott Bessent to increase coupon sales at some point this year. Whether it’s this quarter, next or way out at the November QRA, the market will be asked to underwrite more US government bond supply. All else equal, that’d pressure borrowing costs higher, particularly given pervasive debt and deficit concerns and the shifting buyer base (i.e., from price-agnostic buyers to price-sensitive buyers) for US Treasurys.

The Fed could help out, but Jerome Powell’s adamant that at no point will the Committee engage in any sort of overt circular funding scheme despite having done just that post-GFC and during the pandemic, when the Fed dropped almost every pretense to not running a Ponzi scheme (“almost” because QE-buying was still conducted through the primary dealer middleman). Suffice to say many worry the US government’s interest burden will increase in perpetuity.

I won’t debate the sustainability of rising US interest costs, having long ago thrown in the towel on explaining that in fact, Treasurys aren’t “debt.” The point here — and this brings us full circle — is to highlight the divergent trajectories of interest payment burdens in America. Behold:

The chart, again from SocGen’s derivatives strategy team, gives you a sense of the dynamic. It’s pretty dramatic.

Of course, the US government’s not a corporation, contrary to what the likes of Stan Druckenmiller would have you believe. I’m alone in the universe in suspecting that Stan’s a stone, cold moron, but one thing’s not up for debate: The world needs US government paper (bills, notes and bonds), and Treasury has a responsibility to issue in a predictable manner. Period.

I’m not suggesting Janet Yellen didn’t politicize the process. She pretty plainly did. All I’m saying is that you can’t, as Treasury Secretary, say, “Oh, look, long-end yields are very low, we’ll just fund exclusively at the long-end.” That’s not how it works.

One final (related) note: The US government can’t be managed “like a business.” Again: It’s not a corporation. It doesn’t exist to maximize profits. It exists to serve the public. Elon Musk doesn’t understand that.