Treasury’s behind the rate curve

The LinkedIn IPO wasn’t the only market frenzy gripping Wall Street this week. From the campus of MIT in Boston to the Team Disney building in Burbank, some of the nation’s smartest business minds were rushing to lock in what may the lowest interest rates in a generation, perhaps even the lowest rates of the century.

Other household names, from Johnson & Johnson to Norfolk Southern to Google, eagerly sold their IOUs this week. In the case of Google’s $3 billion bond sale, it was the first time the search engine giant ever sold its debt. In the case of MIT and Norfolk Southern, the bonds won’t come due for 100 years. If that’s not a sign of conviction that rates are going up, I don’t know what is.

It’s also why it is so vexing to ponder why this nation, with its long-term unresolved budget crisis, isn’t taking the basic steps any sound-minded corporate treasurer would take to ensure that interest payments on its obligations don’t turn the looming debt nightmare into a full-blown death spiral.

Here are the numbers: Under current projections out of Washington, net interest payments on the US federal debt will swell to $677 billion by 2017, more than triple the amount of interest we pay now. Yet, as Uncle Sam’s obligations ballooned in recent years, the US Treasury has stepped up its short-term borrowings dramatically. As of February, the Treasury had $1.74 trillion in bills with a maturity of one year or less, up from just under $1 trillion in 2007.

Since, as we all know, Fed boss Ben Bernanke will have to raise rates from their current easy-money basement, the Treasury’s debt management strategy will likely make the debt situation even worse.

Yes, while Uncle Sam will have to roll over almost $2 trillion in short-term obligations in the next 12 months (a policy akin to re-financing your mortgage every year), the eggheads at MIT are getting off the short-term interest rate fix. Which strategy makes the most sense? I’m putting my money on the eggheads.