(Bloomberg) - Since Scott Bessent took the Treasury’s helm in January, bond dealers have done a 180 on the key question about his issuance strategy in the $29 trillion market for US Treasuries.
At the start, the focus was how quickly he might ramp up sales of longer-term securities. That’s after Bessent and other Republicans accused former Treasury Secretary Janet Yellen for artificially holding down sales of that kind of debt, and said it was an attempt to keep borrowing costs low before the election.
Bessent quickly adopted the Yellen debt-management plan, however, and has repeatedly made clear he isn’t about to boost issuance of notes and bonds because their yields are too high. Now the debate is about the limits of Treasury’s bias to sell bills, which mature in up to a year. Dealers will be looking for clues in the Treasury Department’s next formal update of debt-sales plans, due Wednesday.
“The commentary we’ve heard recently suggested that there isn’t necessarily an urgency right now to start increasing long-end issuance, and that they can meet near-term needs with increased bill issuance,” Phoebe White, head of US inflation strategy at JPMorgan Chase & Co., said in a phone interview.
For now, there’s “a backdrop where we have seen a lot of demand for bills,” including from the growth of money market funds, she said. But there are downsides to the Treasury relying more on bills, including higher volatility in interest payments as it rolls over maturing ones.
President Donald Trump and his team say borrowing needs will shrink as growth picks up thanks to tax cuts enacted this month, as well as moves to scrap regulations and revive manufacturing. Plus there’s rising revenue from tariffs. All of that in theory argues against boosting sales of long-term securities and locking in relatively high interest costs.
In the immediate future, borrowing is on the rise. In its latest quarterly estimate, the Treasury said Monday it now expects to borrow $1.01 trillion in the three months through September — that’s up sharply from an April projection of $554 billion, mainly due to distortions from the debt limit. Since Congress raised the ceiling earlier this month, debt managers have been ramping up bill sales to rebuild a cash balance run down during the first half of the year.
The Treasury also said Monday it expected net borrowing of $590 billion in the final three months of 2025.
For next week’s so-called quarterly refunding auctions, which include 3-, 10- and 30-year maturities, Wall Street expects no change from the past several quarters. That would leave the sales totaling $125 billion, made up of the following:
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$58 billion of 3-year notes on Aug. 5
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$42 billion of 10-year notes on Aug. 6
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$25 billion of 30-year bonds on Aug. 7
Forecasters predict outsize fiscal deficits for years to come, which would steadily increase the Treasury’s need to issue debt. To prevent an over-reliance on bills, that means increasing sales of notes and bonds at some point.
Dealers will be closely watching in Wednesday’s statement for any tweak to the guidance that officials have had since January last year, that they plan to keep the size of those sales unchanged “for at least the next several quarters.”
If officials see the potential need to boost note and bond auctions starting in February 2026, they might remove the “at least” wording from their guidance, White and her JPMorgan colleagues wrote in a recent note.
But some dealers are betting on a later date. Bank of America Corp. this month scrapped its prediction that February 2026 would see the start of bigger note and bond auctions, now expecting the Treasury to hold off until 2027. Citigroup Inc.’s forecast is May 2026, with risk of a delay until later next year.
The refunding announcement also may feature guidance on how much Bessent is prepared to allow bills outstanding to grow as a share of total US debt.
If the Treasury continued to refrain from increasing note and bond issuance, the bill share would climb to 27% by 2028 — exceeding its peak in 2020, when sales were ramped up to pay for Covid relief — and to 41% by 2033, according to Citigroup Inc. strategists Alejandra Vazquez Plata and Jason Williams. They don’t expect things to go that far, predicting the Treasury will likely have a “soft cap” of around 25%.
The Treasury Borrowing Advisory Committee, a panel of dealers, investors and other market participants, recommends the ratio should average around 20% over time, with 15% as a “lower bound.”
One thing to keep an eye on Wednesday is any “charge” from the Treasury to the TBAC asking the panel to offer thoughts on broader trends in demand for Treasuries. JPMorgan’s White said she’s on the lookout for “anything that would indicate that they’re willing to let the weighted average maturity of the debt move shorter.”
Buyback Program
Bessent has repeatedly pointed to stablecoins as a new source of demand for bills, as new legislation mandates them to hold T-bills or other safe assets in reserve. The Federal Reserve, which has debated whether to skew its purchases toward bills, may be another one.
Dealers will also be on watch for any news on the Treasury’s program of buying back outstanding securities.
The department in April said it was looking at “enhancements” to that initiative, launched last year. Bessent drew attention to the program after a surge in Treasury market volatility triggered by concerns over Trump’s tariff hikes. Barclays Plc strategists predict the Treasury will announce an increase in buybacks on Wednesday.
Currently, buybacks are conducted to improve liquidity and aid the Treasury in its cash management. But Bloomberg Intelligence strategists Ira Jersey and Will Hoffman see the potential for a broader objective.
The duo point out that Bessent has targeted 10-year yields — a benchmark for borrowing rates such as mortgages — and could deploy buybacks as a way to pressure them lower by cutting the average maturity of US debt.
“If the Trump administration believes long-term rates will fall with reduced supply of longer-term debt, this would be one way of testing that hypothesis,” they wrote.
(Updates with quarterly borrowing estimate in fourth paragraph after first chart.)
By Christopher Anstey
With assistance from Alex Newman and Alexandra Harris
