Household, Corporate and Government Debt

May 21, 2021

By Tim Courtney, Chief Investment Officer

Over the last year the Federal Reserve has stated its intention to keep interest rates near zero into 2022 and possibly into 2023. Even before the interest rates fell in 2020 to near zero, they were already fairly low with the 10-year Treasury hovering around 2% in late 2019 compared to about 1.6% now.1

We’ve seen the ripple effects of these low rates impact several parts of the economy but it has obviously also affected borrowing decisions at every level. This week, we take a closer look at how households, companies, and the government are reacting to the impact of low rates.

Households. Low interest rates have been a net positive for most households.  Households have increased their total debt to an all-time high, but household assets including liquid investments and home values are also at all-time highs. As a percentage of GDP, household debt is just under 80%, roughly where it has been for the last six years and well below the 100% level hit in 2008.2

Homeowners across the country are prudently using these low rates to both refinance their homes and pay down higher rate credit cards. Demand for refinancings and purchase loans surged as the pandemic hit. All in all, lenders originated a record $3.83 trillion in home loans in 2020.3 Additionally, cash-out refinancings were at their highest point since before the start of the financial crisis.4 Further, in the first quarter of 2021, borrowers cut $49 billion in credit card debt5 as the economy began to rebound, many applying stimulus payments toward their bills.

Margin debt has also hit record highs, crossing $820 billion in March6 as more people use their brokerage investments to back borrowing.  While it can be a risky to borrow for additional investment leverage, it can also be helpful to fund shorter-term needs without having to sell appreciated assets.

Corporations. Since the early days of the pandemic, corporate debt has increased as companies rushed to borrow in order to pay for operating expenses. In fact, total debt held by U.S. nonfinancial corporations reached a record high in 2020 of $17.5 trillion.7

Corporations have certainly increased their debt levels, sometimes borrowing money currently not needed but doing so to lock in extremely low rates for long-term debt.

Government. The government debt has also hit records with more coming. Federal debt held by the public is now over 100% of GDP8, the first time it has hit this level since World War II. While many households and corporations locked in longer term debt through mortgage refinancings and long-term bond offerings government debt has remained near a 5 average maturity. While interest rates are low currently there is risk that as old debt matures, new debt will be financed at higher rates and interest cost will begin crowding out other spending priorities. 

Low interest rates have certainly helped with interest burdens. They have also pulled returns on fixed income assets lower and cash to near zero for investors and savers. We will continue to monitor rate developments and maintain our base case of longer-term rates continuing to rise modestly in coming quarters. As always, please feel free to contact your Exencial advisor with any questions.


1. Treasury.gov (5/19/21) – Daily Treasury yield curve rates: 10 Year Treasury
2. StLouisFed.org (5/3/21) – FRED data: Household debt to GDP for US
3. Mortgage Bankers Association (data as of 5/19/21) – Research and economics
4. The Wall Street Journal (3/11/21) – Cash-out refinancings hit highest level since financial crisis
5. Financial Times (5/12/21) – US borrowers cut credit card debt despite economic revival
6. Markets Insider (4/21/21) – Margin debt hit another record high in March to top $822 billion, according to FINRA data
7. S&P Global Market Intelligence (2/22/21) – Corporate America not likely to unwind COVID-19 debt buildup despite credit hits
8. StLouisFed.org (3/25/21) – Federal debt held by the public as percent of GDP

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