Dow 20,000, Dow 25,000 . . . stock watchers have looked on with glee and fear as the market, until last week, continued its climb. But a different number is far more important for the city budget: three.
The annual interest rate on Treasury bonds is slowly creeping up toward 3 percent. Higher rates will make it more expensive for Gotham to borrow, even as it has tens of billions of dollars in transit, school, road, water and bridge needs.
Twenty years ago, a 3 percent interest rate on a 10-year federal Treasury bond would have been a historic low. But after the financial crisis a decade ago, the Federal Reserve pushed interest rates to near zero. The Fed bought up trillions of dollars of Treasury bonds and other debt, lending money to the US government dirt-cheap.
Now, interest rates are going up as Treasury bonds are coming close to 3 percent for the first time in nearly seven years.
This is happening for two reasons: first, the Fed doesn’t think the economy needs as much help as it did after the 2008 crash, and so has been pushing rates steadily up since 2015.
Second, the Christmas tax cut is putting more money in your paycheck — and the government is borrowing the money for it. The Treasury will borrow $955 billion this year, up from $519 billion last year, The Wall Street Journal reported Thursday.
That’s a yuge increase, so the government has to pay higher rates. Corporate and municipal borrowers will have to pay more, too, since rates usually move in tandem. Indeed, interest rates for municipal bonds rose on Friday along with Treasury bonds.
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What does that mean for New York? It could mean losses for banks. With higher interest rates, fewer people will refinance their mortgages or borrow money to buy new cars — meaning less business for Wall Street.
Then, too, investors in existing bonds could see big paper losses. If new bonds offer higher interest rates, fewer people will want to buy the old ones.
Bad news for banks means bad news for the city budget. In his budget presentation last Thursday, Mayor de Blasio noted New Yorkers earn 80 percent of their salary and wage income outside of Wall Street. But that means the city still depends on this one industry for 20 percent of such income — and sees a multibillion-dollar drop in tax revenue when Wall Street struggles.
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