Treasury Rejects Wall Street's Bid to Change Debt-Sale Guidance

Debt Guidance Holds Firm

Wall Street pushed for a different message on debt sales. The Treasury said no.

JPMorgan strategists led by Jay Barry say the Treasury should drop the words "at least" from its guidance.

"From a prudent debt management perspective, we think next week Treasury should remove 'at least' from the long-standing forward guidance," they wrote.

They also pointed to why it may not happen. "There are political dynamics at play."

Blake Gwinn of RBC Capital Markets thinks the Treasury should leave itself room to move. "It behooves Treasury to open up some optionality," he said.

He also warned that waiting longer could make the eventual shift feel like a bigger deal to markets.

Why the Treasury Is Holding Back

Short-term bills are cheap, and the Treasury has used them heavily to keep borrowing costs down. That habit is changing the shape of the national debt.

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Bank of America calculates the T-bill share would hit nearly 25% if the Treasury keeps longer-term note and bond sales unchanged through the fiscal year that begins Oct. 1. Outside the pandemic and financial-crisis episodes, that would be the largest such share since 2004.

The Treasury Borrowing Advisory Committee has previously advised that T-bills should make up closer to 20% of the mix.

Loaded up on bills, the government's interest bill becomes more sensitive to short-term rate moves. Economists project the budget deficit will stay near a $2 trillion yearly rate for years, and the Treasury said in May that it planned to borrow $671 billion on a net basis over the three months ending in September.

Long-term yields are adding to the pressure. The 30-year yield hit 5.27% late last week, a level not seen since 2007, while the 10-year sat at 4.73% and the 5-year at around 4.45%.

That gives President Donald Trump's Republicans a reason to avoid nudging yields higher, with midterm elections ahead. The policy language was inherited from the Biden administration, and Bessent previously faulted it.

Demand on the short end is not the problem. Crane Data LLC puts money-market fund assets near $8.3 trillion, and the Federal Reserve is recycling maturing mortgage securities into bills.

Bessent has said stablecoin issuers will generate new demand for T-bills.

What to Watch This Week

Monday brings the Treasury's updated current-quarter borrowing estimate. Wednesday brings its quarterly refunding statement.

The debt sales themselves start next week. On Aug. 11, the Treasury will auction $58 billion of three-year notes; on Aug. 12, $42 billion of ten-year notes; on Aug. 13, $25 billion of thirty-year bonds.

Dealers now expect a Treasury increase in coupon sales to come later than they had thought as of the May refunding, with many now targeting May 2027. Deutsche Bank AG, for instance, expects a tweak sooner, as do Wells Fargo and CIBC Capital Markets; some see an announcement as early as February.

Michael Pugliese's Wells Fargo group expressed little confidence that such a change will happen soon. "Would we be shocked if Treasury punted on the language once again? Not at all, particularly because the November refunding announcement will occur one day after Election Day," the Wells Fargo team said. "But a change should be coming," they added, pointing to fundamentals and the advisory committee's earlier recommendations.

Analysts at JPMorgan Chase & Co. expect the government's borrowing needs to outrun supply in the fiscal year that starts Oct. 1. The projected cumulative shortfall from 2027 through 2030 is $3.7 trillion.

In May, Treasury officials said they were studying potential coupon increases "with a focus on trends in structural demand and potential costs and risks of various issuance profiles." Strategists Gennadiy Goldberg and Molly Brooks of TD Securities said this hints that any coupon issuance boost would probably be concentrated in shorter maturities.

Most dealers think that when the Treasury eventually increases coupon issuance, it will favor short and medium maturities rather than 10-, 20- and 30-year bonds.

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