The first quarterly announcement of refunds under Scott Bessent’s leadership was made with the confirmation of his appointment as US Treasury Secretary.
In the last year, there has been much written about how the politicalization of Treasury debt and its impact on markets could be a problem.
The proportion of coupons versus bills has exploded, as shown below. Traditionally, Treasury has used this maneuver to help raise money quickly in times of crises.
But this happened under a regime with exceptional economic power.
Bessent criticized the strategy publicly before being appointed secretary. He discussed his belief that it was essential for the composition of issued debt to get normalized — meaning an increase in proportion of longer-duration debt being issued.
This strategy, while admirable, would be precarious because there is no structural demand for bonds with a long duration without QE. Foreign central banks will also become net sellers of debts over a long period of time, as well as concerns that fiscal deficits may increase.
In this context, everyone was watching the QRA of this week to see if Bessent changed its composition and returned it back towards normalization.
Bessent is sticking to the same policy approach he criticized Yellen about, which can be seen from the chart of borrowing estimates for the next two quarterly periods.
It’s interesting to note that the Treasury Department decided to maintain the Forward Guidance of the issuance introduced last year. This guidance was kept despite TBAC recommendations to remove it.
“In discussing issuance recommendations, the committee uniformly encouraged Treasury to consider removing or modifying the forward guidance on nominal coupon and FRN auction sizes that has been in the refunding statement for the past four quarters. Some members preferred dropping the language altogether to reflect the uncertain outlook, though the majority preferred moderating the language at this meeting.”
Treasury, despite this recommendation kept its commitment.
“Based on current projected borrowing needs, Treasury anticipates maintaining nominal coupon and FRN auction sizes for at least the next several quarters.”
Then what? Then I will leave you with a funny meme.
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