Bessent's Treasury Twist Spurs Wall Street Shift in Borrowing Strategy
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US Treasury Secretary Scott Bessent's activist debt management has Wall Street war-gaming a potential shift in borrowing strategy. The Treasury could signal at its Nov. 4 quarterly refunding that future borrowing increases will use bills and shorter-maturity notes. The expanded buyback program announced last week raised stakes around the November announcement for the $31 trillion Treasury market.
Key Facts
- Deutsche Bank AG, Morgan Stanley and Citigroup Inc. see a radical option of cutting sales of long-dated bonds.
- The Treasury could signal at its Nov. 4 quarterly refunding that future borrowing increases will be done via bills and shorter-maturity notes.
- Bank of America strategists led by Meghan Swiber said the shift signals the start of a new regime with a more activist Treasury.
- Bessent has ruled out changes to the regular auction program until at least the next refunding.
- Morgan Stanley rates strategist Martin Tobias expects the Treasury will gradually increase sales of shorter-dated notes while keeping longer-maturity sales steady.
Borrowing Strategy Shift
Wall Street is war-gaming a potentially bigger shift in the government's borrowing strategy over the coming months. One radical option would be to cut sales of long-dated bonds, according to Deutsche Bank AG, Morgan Stanley and Citigroup Inc. More likely, the Treasury could signal at its Nov. 4 quarterly refunding that future increases in borrowing will be done via bills and shorter-maturity notes, while further expanding buybacks to ease pressure on long-term yields. The rethink shows how Bessent's actions are bringing uncertainty to a policy long known for being regular and predictable.
Market Reaction
Bank of America strategists, led by Meghan Swiber, said it signals the start of a new regime as officials take a more activist role in shaping the market. Bessent's moves have effectively made the November refunding announcement more of a wildcard than otherwise would have been the case, said Ian Lyngen, head of US rates strategy at BMO Capital Markets. Reductions to bond auction sizes can no longer be ruled out, Lyngen added. For now, Bessent has ruled out changes to the regular auction program, saying that Treasury will stick with its current schedule until at least the next refunding.
Buyback Program Limits
A revamped buyback program announced last week, which Bessent dubbed a Treasury twist, raised the stakes around the November announcement for the $31 trillion Treasury market. The expanded buybacks are unlikely to deliver a meaningful transformation of the government's debt maturity on their own. Unlike the Federal Reserve, Treasury cannot create money to finance its purchases, meaning buybacks must ultimately be funded with additional issuance, most likely bills, or with cash from the Treasury General Account. Expanded buybacks themselves are likely just a bridge until they get to November refunding, said Martin Tobias, a rates strategist at Morgan Stanley. The market-moving event ultimately will be the manner with which Treasury goes about shortening the weighted-average maturity, Tobias added.
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Bessent's Treasury Twist Spurs Wall Street Shift in Borrowing Strategy
