Treasury Secretary Scott Bessent is pushing the U.S. Department of the Treasury toward a more proactive debt management model, signaling that the traditional strategy of “regular and predictable” issuance is giving way to direct intervention in the market yield curve. The quarterly refunding announcement on November 4 will serve as a critical test of this new approach. Currently, the consensus on Wall Street leans toward moderate measures such as increasing short-term financing and expanding long-term buybacks, but the possibility of cutting long-term auction sizes, and even adjusting the issuance of the 20-year Treasury bond, has officially entered market discussions, suggesting that the pricing logic of the world’s largest bond market faces new uncertainties.
Several institutions, including Deutsche Bank (DB), Morgan Stanley (MS), and Citigroup (C), believe that against the backdrop of long-term Treasury yields remaining at multi-year highs, further adjustments to the issuance structure by the Treasury in the coming months have become a general trend, with extreme cases even leaving open the possibility of reducing long-term debt issuance.
Market attention has locked onto November 4, the date of the U.S. Treasury’s upcoming quarterly refunding announcement. Analysts widely expect that, compared with directly cutting long-term issuance, a more likely strategy would involve shifting new financing needs toward short-term bills and shorter-dated intermediate-term notes, while continuing to expand buybacks of long-term bonds, in order to alleviate upward pressure on long-end yields. For a long time, the Treasury’s debt management has adhered to the principle of being “regular and predictable,” but Bessent’s recent moves are breaking with that tradition.
Although Bessent has indicated that he will not alter the regular auction schedule before the next refunding, the Treasury’s announcement last week to expand its bond buyback program—dubbing it an “operation twist”—has significantly raised market expectations for policy adjustments. Deutsche Bank strategist Steven Zeng and his team forecast that the next step may first involve increasing the per-auction buyback size for long-term bonds beyond the current recommended minimum of $4 billion. More notably, the Treasury may in the future announce the specific buyback size only one day before implementation, a practice that would reduce the predictability of the program and increase the risk of shorting long-term Treasuries. However, relying solely on expanded buybacks cannot fundamentally alter the debt maturity structure.
Recent shifts in policy language have also set the stage for future adjustments. In the most recent refunding announcement, the Treasury mentioned studying potential “adjustments” to coupon-bearing auction sizes, rather than the previously used term “increases,” thereby leaving greater policy leeway for reducing issuance of certain long-term maturities. Some Wall Street firms have even begun discussing more aggressive scenarios. Citigroup has pushed back its forecast for expanding auction sizes to 2028 and has raised a tail-risk scenario in which the Treasury could eventually eliminate the 20-year Treasury bond. This maturity was reintroduced in 2020 but has underperformed in the market, with its yield trading unusually close to that of the 30-year bond. Jason Williams, head of Citigroup’s rates strategy, believes the 20-year bond could be the biggest beneficiary of any adjustment, given its poor performance, and that the Treasury may prioritize cutting its auction size.
