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Forbes
31-07-2025
- Business
- Forbes
Trump Administration Debt Strategy Is More Confusion And Uncertainty
President Donald Trump and Treasury Secretary Scott Bessent appear to be pushing a new approach to Treasury bond sales. However, what is supposed to be new seems similar to what was done by Janet Yellen during the Biden administration: pushing short-term bonds over long-term ones. As the Wall Street Journal reported, the administration said it would delay issuance of longer-term bonds until yields fell. The likely rationale is secondary budget control of debt expenses. Annual debt service for the U.S. is currently more expensive than any discretionary budget category, including defense spending. 'What I'm going to do is I'm going to go very short-term,' Trump had said in June, according to the Journal. 'Wait until this guy [Fed Chair Jerome Powell] gets out, get the rates way down, and then go long-term.' The federal budget deficit is approximately $2 trillion annually. To support the deficit spending, the government must sell enough debt to cover it. The debt varies in length from far less than a month to 30-year bonds. The Treasury uses different mixes of securities to maintain the balance. Shorter-term Treasurys shorten the interest payment obligations and is usually cheaper, at least when the yield curve isn't inverted and longer-term bonds have higher yields. But shorter-term also means space for volatility and a jump in costs if inflation increases. Longer-term Treasurys allow the government to space out the debt obligations and lock in rates, but the costs are higher. The mix typically is set and relatively consistent, so investors know what to expect. The Trump administration plans to announce on Wednesday, July 29, the mix of lengths. 'It is disingenuous to suggest this Administration is deviating from longstanding debt management practices when Treasury's auction sizes and market guidance have not changed since the last Administration,' Deputy Treasury Secretary Michael Faulkender said in a written statement, the Journal noted. But whether a Trump or Biden administration, the strategy has become to pull back from higher levels of long-term bond sales. Bessent, a former hedge fund manager, was a regular critic of the former administration and its Treasury Secretary Yellen for holding down sales of longer-maturity Treasurys, which affect longer-term rates for house mortgages and commercial borrowing, as Bloomberg reported in February 2025. Currently, the combination of concern about inflation, tariff uncertainty, levels of national debt, and questions about the independence of the Feb are pushing investors to demand higher yields on the 10-year. Bessent has said that the administration wants to push down yields on longer-term Treasury debt. So far, strategies haven't delivered. That potentially increases the amount of uncertainty the country's economy has been facing. Announcement of tariff deals would seem to help reverse the trend of confusion, but they only appear to mask it. Jorge Liboreiro, a reporter at Euronews, posted an analysis on the White House's fact-sheet about the US-EU trade deal that, as he notes, 'with claims that directly contradict the European Commission's version of events.' One example is that the White House touts a $600 billion U.S. investment 'pledge' that the EU clarifies as an 'intention,' not pledge. There is no deal on EU purchase of U.S. military equipment. There was no concession on food safety and sanitary certificates for U.S. pork and dairy products. Such redefinitions are more examples of sweeping problems under the rug. Even if portions of the public are reassured, investors and institutions with fiscal muscle that can affect the economy are likely not.
Bloomberg
02-07-2025
- Business
- Bloomberg
Wall Street Dealers Shred Treasury Auction Size Forecasts After Bessent Remarks
Wall Street dealers — until recently expecting US government debt auction sizes to resume growing next year — are going back to the drawing board after comments by Treasury Secretary Scott Bessent this week. Interest-rate strategists at Bank of America Corp. scrapped their earlier forecast for note and bond auction size increases beginning in February, predicting levels will remain unchanged into 2027. Any increase in the borrowing need — which is expected based on federal deficit trends — will be met with more issuance of bills, which mature within a year, they said in a note Wednesday.
