The 2020 Long-Term Budget Outlook

The Social Security trust funds hold special-issue bonds that generally earn interest at rates that are higher than the average rate of interest on federal debt. In CBO’s projections, the nominal interest rate on bonds newly issued to the trust funds is equal to the rate on 10-year Treasury notes; it averages 3.3 percent over the 2020–2050 period and reaches 4.8 percent in 2050. The corresponding real rates are 1.1 percent, on average, over the full period and 2.5 percent in 2050.

Because interest rates have been low for much of the past decade and because the pandemic has driven rates even lower, the average interest rate earned by all bonds (both new and previously issued) held by the Social Security trust funds is projected to be slightly lower than the interest rate on bonds issued over the next decade. The average interest rate on all bonds, which CBO uses to calculate the present value of future streams of revenues and outlays for those funds, is projected to average 3.3 percent for the 2020–2050 period.22

Changes in Projections of Interest Rates Since Last Year. CBO’s projections of interest rates in this year’s long-term budget outlook are generally lower than they were last year (see Figure A-3[37]). However, CBO expects interest rates to rise more rapidly after 2030 and to be higher than last year’s projected interest rates after 2046.

Figure A-3.

CBO’s 2019 and 2020 Projections of the Interest Rate on 10-Year Treasury Notes

Percent

CBO’s projections of interest rates through 2050 are generally lower than they were last year. However, CBO expects interest rates to rise more rapidly after 2030 and to be higher after 2046 than the interest rates projected last year.

Source: Congressional Budget Office.

Data are fourth-quarter values.

CBO lowered its projection of average nominal interest rates. The nominal rates on 10-year Treasury notes and Social Security bonds are projected to average 3.3 percent over the 30-year projection period. Last year, CBO projected both rates to average 4.0 percent over the 30-year period. The agency also lowered its projection of average real interest rates. The real rates on 10-year Treasury notes and Social Security bonds are projected to average 1.1 percent over the 30-year projection period. Last year, CBO projected that both rates would average 1.6 percent over the 30-year period.

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