US Signals Steady Debt Sales to 2027, Offers ‘Subtle Change’

Treasury Secretary Scott Bessent's debt-management team has rejected Wall Street's calls for clearer guidance on future US debt sales, specifically regarding increases in coupon-bearing debt. Most dealers anticipated the Treasury would reiterate its stance of no increases in note and bond issuance for "at least the next several quarters." This position, which originated during the Biden administration, has drawn criticism, with some suggesting it was designed to suppress long-term borrowing costs ahead of the 2024 election. Some banks, including Deutsche Bank, Wells Fargo, and CIBC Capital Markets, had hoped for a tweak in the guidance to allow for an earlier shift to larger coupon sales, potentially as soon as February.

In the interim, the Treasury is increasing its reliance on short-term Treasury bills (T-bills) to meet the government's growing borrowing needs. The department boosted its estimated borrowing needs for the current quarter to $739 billion, up from $671 billion in May. Bank of America calculates that if coupon issuance remains stable through fiscal year 2027, the T-bill share of outstanding debt could reach nearly 25%, a level not seen since 2004, excluding crisis periods. This strategy, while initially tempering costs due to lower T-bill rates, makes debt-servicing expenses more vulnerable to short-term rate fluctuations.

Analysts at JPMorgan Chase & Co. project a "funding gap" emerging in fiscal year 2027, which starts October 1, with a cumulative shortfall of $3.7 trillion from 2027 to 2030. Long-term yields have also been a concern, with 30-year bond yields recently hitting 5.27%, their highest since 2007. While most dealers expect any eventual increase in coupon issuance to focus on short and medium maturities rather than 10-, 20-, and 30-year bonds, some express skepticism about a near-term change, with Wells Fargo noting the November refunding announcement occurs just after Election Day. The Treasury Borrowing Advisory Committee has previously suggested T-bills should comprise closer to 20% of the debt mix.