Besant reiterated the "gradual" adjustment of U.S. debt issuance, emphasizing market stability as the top priority.

U.S. Treasury Secretary Bessent stated that the Treasury is prepared to adjust the types of government debt issuances according to changes in investor demand, but any changes will be gradual to avoid disrupting the market.

On Wednesday, at a New York Fed conference, Bessent emphasized that the U.S. Treasury will maintain an analytical approach in decision-making, gradually adjusting issuance size to avoid market turmoil, and will provide forward-looking public guidance as much as possible.

Bessent pointed out that last week's quarterly funding announcement clearly indicated that "at least for the next several quarters" there will be no changes to the auction size for Treasury bills and bonds. However, he said that the Treasury is "closely monitoring potential long-term changes in demand for specific U.S. Treasuries" and will make adjustments accordingly.

He expects that with the passage of the stablecoin bill, the stablecoin market may grow tenfold over the next decade from the current approximately $300 billion, which will drive up demand for short-term bonds.

Bessent reiterated the Treasury's long-standing commitment to "regular and predictable" issuance, stating, "Maintaining a healthy Treasury market and further strengthening it is my top responsibility."

It is noteworthy that in August last year, Bessent also criticized Yellen for releasing advance notice of keeping Treasury sales stable, saying it was the Treasury's "first ever" provision of such forward-looking guidance.

Multiple Factors Driving Changing Demand

Bessent pointed out that several factors are reshaping the landscape of U.S. Treasury demand.

First, the stablecoin market is expected to expand significantly, from the current scale of about $300 billion to potentially "ten times growth" in ten years, which will greatly boost demand for short-term bonds of one year or less.

Second, after the Fed announced last month an adjustment in the way it manages its balance sheet, it will be purchasing more short-term bonds.

Additionally, changes in U.S. regulations are prompting banks to increase their demand for Treasuries, and proposed easing of capital requirements related to U.S. government bonds could further bolster this demand.

Focus on Long-Term Bond Issuance

In his speech, Bessent specifically mentioned seeking advice from the Treasury Borrowing Advisory Committee.

In February this year, he hinted at plans to adjust the committee, which consists of investors, dealers, and other bond market participants, but no relevant announcement has been made so far.

Last week's announcement showed that the Treasury has begun "initial" consideration of increasing the auction size for nominal coupon bonds. On Wednesday, Bessent stated:

Because these bonds have a longer duration, gradual adjustment is even more important.

He emphasized:

By evenly spreading out maturities over a period of time, regular and predictable issuance can limit rollover risk and avoid a large amount of debt maturing simultaneously.

Market participants noted that if the Treasury does not increase issuance of long-term Treasuries and continues relying on short-term Treasuries to finance America’s growing debt, the constant maturing of a large volume of short-term bonds will increase rollover risk.

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