Treasury Can't Issue Short-Term Treasuries Forever, Which Can Only Mean One Thing

Treasury has preferred to issue short-term paper since 2020. Even when long yields were close to zero in 2021 and early 2022, then Secretary Yellen preferred to issue short-term paper (a missed opportunity). Overweighting Treasury auctions toward the short-end of the maturity curve increases credit risk and volatility.

Treasury Secretary Bessent will have to make a decision about upcoming Treasury auctions later this year as Treasury will have to issue new debt to cover the forthcoming $2.6 Trillion fiscal deficit for 2025 that was locked-in with last week’s fiscally irresponsible Continuing Resolution (CR). Given the size of this year’s forthcoming deficit (the U.S. has run a $1.1 Trillion deficit fiscal YTD, annualizing that figure is how we estimate a $2.6 Trillion deficit for FY 2025), I am surprised the Treasury market did not run up the 10-year yield much higher once the CR was passed. Today’s 30-something Treasury traders are much more sanguine than I about credit risk.