Insatiable demand for safe haven US government bonds is helping mask a potentially huge financial problem - the need to extend the maturity of debt issued by the United States.
The United States has the least balanced maturity schedule of any major nation. Over 70 percent of its bonds mature within 5 years, compared with an average 49 percent for the 34 member countries in the OECD.
This leaves the country extremely vulnerable to any shift in investor sentiment at a time when its debt load has almost doubled in four years.
Marketable US debt has risen to over $9 trillion, from around $5 trillion in late 2007, before the government increased spending to bail out struggling financial companies. If sentiment were to shift quickly, it could send the cost of refinancing the country's bonds sharply higher. This would, in turn, eat into its budget and ability to meet long term obligations.
In a worst-case scenario the country might not be able to refinance at all.
"There has never been a single example in the history of finance where financing long-term liabilities, which we are, with short-term debt, ends well," said Mitch Stapley, chief fixed income officer at Fifth Third Asset Management in Grand Rapids, Michigan. The Treasury has been extending the average maturity of its debt. However, with proportionally few longer-term bonds and large long-term liabilities, more work is needed.
Though some of these worst-case scenarios for US debt might appear unlikely, Standard & Poor's recent downgrade of treasuries should serve as a reminder that once unshakable confidence in the United States can come under question.
The downgrade occurred after an acrimonious political battle over dealing with the debt, which raised concerns over the country's ability to address its fundamental issues.
The US benefits from bond investments by foreign central banks, funds and other investors that has made Treasuries one of the largest and most liquid markets in the world.
This investor interest has helped benchmark 10-year rates fall near 2 percent, among the lowest rates in the world.
There is no guarantee, however, that demand will continue. US debt demand is closely linked to the dollar's reserve currency status, and this is slipping.
The Treasury Borrowing Advisory Committee, which comprises 14 industry representatives from banks and asset managers, has warned about the dollar's reserve currency status.
"The idea of a reserve currency is that it is built on strength, not typically that it is 'best among poor choices'. The fact that there are not currently viable alternatives to the US dollar is a hollow victory and perhaps portends a deteriorating fate," the committee said in its August presentation to the Treasury.
China, which holds over $1 trillion in Treasuries, has said it wants to reduce its reliance on the dollar. The US Treasury has succeeded in extending the average maturity of its debt to 62 months, out from less than 50 months in 2009. That process needs to continue.
"We need to start thinking about the debt maturity schedule from the perspective of it being with us" for a while, said Colleen Denzler, head of fixed-income strategy at Janus Funds, in Denver. The high US debt load differs from previous periods where the perspective on the obligations "was that at some point it was going to potentially go away."