The whole Wall Street is watching Besant's strategy on Wednesday regarding US debt.

As the U.S. debt burden continues to climb, markets expect Treasury Secretary Besant to further shift toward short-term bonds to suppress long-term U.S. Treasury yields.

This Wednesday, the U.S. Treasury will release its quarterly bond report. Traders broadly expect Besant to confirm a continued increase in the issuance ratio of short-term bonds in the $30 trillion Treasury market.

Although Besant has repeatedly criticized former Treasury Secretary Yellen’s preference for short-term Treasuries, amid the ongoing rise in U.S. debt, Besant has also maintained this approach after taking office, aiming to suppress long-term Treasury yields.

Besant’s policy adjustment is also coordinated with the Federal Reserve’s stance. The Federal Reserve has announced it will stop reducing its Treasury holdings and, starting in December, will use the funds recovered from maturing mortgage-backed securities (MBS) to buy short-term Treasuries.

Proportion of Short-Term Bonds Expected to Keep Rising

Traders will closely watch the Treasury’s comments on the proportion of short-term Treasuries.

Last year, the Treasury Borrowing Advisory Committee (TBAC)—composed of traders, investors, and other market participants—recommended that this proportion remain around 20% in the long term. However, as of September this year, the ratio has exceeded 21%.

According to Citigroup estimates, if the U.S. Treasury does not increase the issuance of medium- and long-term bonds, the proportion of short-term Treasuries will rise above 26% by the end of 2027.

Priya Misra, portfolio manager at J.P. Morgan Asset Management, stated:

There is currently no need to adjust issuance levels. But by 2026, an increase in supply will become necessary, when issuing more short-term and shorter-duration bonds will make more sense.

It was reported that although there were rumors last month that the U.S. might cut some long-term bond issuance, traders expect the Treasury to keep auction sizes for all bond maturities unchanged on Wednesday, reiterating its July statement to maintain nominal coupon bond sales "at least in the coming few quarters."

For next week’s refinancing auction, Wall Street expects the same scale as in previous quarters, totaling $125 billion:

$58 billion of 3-year Treasuries issued on November 10;$42 billion of 10-year Treasuries issued on November 12;$25 billion of 30-year Treasuries issued on November 13.

Falling Rates Bring Financing Cost Advantages

Benefiting from the Fed’s October rate cut, the overnight benchmark rate was lowered to the 3.75%–4% range, making short-term Treasuries increasingly cheaper for the Treasury.

Scott DiMaggio, head of fixed income at AllianceBernstein, says that cost savings from refinancing debt at lower rates, combined with tariff revenue, could save the U.S. government $1 trillion.

In the fiscal year ended September 30, the Treasury’s total spending on debt reached a record $1.22 trillion.

On the other hand, the Fed’s balance sheet operations will create new demand.

J.P. Morgan estimates that the Fed’s use of cash recovered from maturing MBS to purchase Treasuries may bring about $1.5 billion in extra monthly demand.

The bank forecasts that, together with the end of quantitative tightening and other non-policy factors, the Fed’s demand for short-term Treasuries could reach $280 billion next year.

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