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U.S. Treasury Department to take "extraordinary measures" as government nears debt ceiling
The $220 billion TSP G Fund (SV) will be called to duty AGAIN. At some point, its daily rollovers will be postponed until the debt-ceiling issue has been dealt with.
Does the cohort of conservative retired investors consider this news actionable? Until this late breaking update it was thought this game would not begin till June.
Bloomberg has a great piece by Matt Levine pointing out that the debt ceiling applies only to the principal of the bonds not the interest. So it would be easy to get around the limit by selling bonds with high interest for a premium, which is entirely legal. It is behind a paywall so I will quote the argument here
He points out that there is little difference in selling two $100 one year bonds paying 4.5% ) yields $9 interest) vs selling one $100 bond paying 109% interest. The latter would sell for $200, or a premium of $100 with $9 in interest being the same as that accumulated on two $100 bonds. The 109% interest bond would only raise the debt ceiling by $100, compared to the $200.
In a taxable account, one would amortize the premium over the life of the bond, so that the net taxable interest would be the same on either bond.
This amortization is optional on taxable bonds, mandatory on muni bonds. This amortization helps reduce annual tax-free income, which in turn reduces MAGI for IRMAA purposes.
Comments
SS/Medicare cuts are off the table and definitely no cuts to any paychecks or pension plans for federal employees.
So the brunt will fall on other departments -- Treasury, Defense, Education, etc.
Game of chicken came to my mind, too. As in, you folks have been warned. A 'Dear Kevin' letter.
He points out that there is little difference in selling two $100 one year bonds paying 4.5% ) yields $9 interest) vs selling one $100 bond paying 109% interest. The latter would sell for $200, or a premium of $100 with $9 in interest being the same as that accumulated on two $100 bonds. The 109% interest bond would only raise the debt ceiling by $100, compared to the $200.
I would buy this in a non-taxable account!
This amortization is optional on taxable bonds, mandatory on muni bonds. This amortization helps reduce annual tax-free income, which in turn reduces MAGI for IRMAA purposes.
https://www.law.cornell.edu/cfr/text/26/1.171-4