Wall Street expects US to issue about $1tn of short-term debt as borrowing costs climb

{"text":[[{"start":12.56,"text":"Wall Street banks are expecting the US to borrow up to $1tn over the next year by selling short-term Treasury bills as part of a growing dependence on quick-maturing debt that leaves Washington vulnerable to rising interest rates."}],[{"start":26.052,"text":"The US will borrow roughly $1.07tn excluding money raised to pay off maturing debt in the coming fiscal year to September 2027 through issuing bills, according to Bank of America forecasts. JPMorgan expects $1.09tn of bill issuance in calendar 2027, while Goldman Sachs forecasts $961bn."}],[{"start":48.52,"text":"The increasing focus on bills, which mature in a year or less, comes at a time when long-term US borrowing costs have climbed to the highest level since 2007 as the country’s public debt rises, companies raise vast amounts of debt to fund the AI boom and economists boost expectations for economic growth."}],[{"start":66.48,"text":"Scott Bessent has sought to keep a lid on long-term borrowing costs, with the Treasury secretary last month surprising markets with plans to expand his agency’s purchases of 10-to-30-year Treasuries."}],[{"start":77.88,"text":"His department has also continued a policy of expanding short-term debt sales to meet the government’s record borrowing needs — a policy Bessent has previously criticised his predecessor Janet Yellen for undertaking, claiming that she had “taken control of monetary policy” and “eased financing conditions substantially” ahead of the 2024 US election."}],[{"start":97.8,"text":"BofA’s estimate would take the stock of outstanding bills to roughly $8tn, or 24.3 per cent of marketable Treasury debt, by next September. Goldman has the figure reaching 24.3 per cent next year and 24.9 per cent in 2028, putting it close to a recent peak reached during the pandemic."}],[{"start":117.76,"text":"That is against an official target of “around 20 per cent over time”, set out by the Treasury Borrowing Advisory Committee, a group of market participants who advise the Treasury, as a good trade-off “between interest rate costs and the volatility of debt financing and rollover risk”."}],[{"start":133.2,"text":"In the past two decades, bills have only risen above a quarter of outstanding debt in peaks around the pandemic and 2008 financial crisis. The longer-term average going back to the 1980s is 22.4 per cent, and it was regularly above 30 per cent at the start of that period."}],[{"start":null,"text":"

"}],[{"start":150.88,"text":"Mark Cabana, head of US rates strategy at BofA, said the Treasury was “trying to balance supply and demand” in the government bond market, but is risking a “larger and more volatile” interest bill by issuing so much short-term debt."}],[{"start":165.6,"text":"Adam Josephson of Sakonnet Research echoed that sentiment, saying, “the more volatile its debt-servicing costs become”."}],[{"start":172.28,"text":"Still, Joe LaVorgna, a former economic counsellor to Bessent, said the rise in the proportion of bills was not “such a big deal”."}],[{"start":181.28,"text":"“The absolute numbers look big because the deficits themselves are really big. But you probably want to look at it as the ratio — in that regard, it doesn’t look totally out of whack by historical standards,” said LaVorgna, now chief economist for the Americas at SMBC Nikko Securities."}],[{"start":198.36,"text":"An administration official said: “Since 1970, when the US consistently began running budget deficits, bill issuance as a share of total issuance averaged 24.3 per cent. As of last month, we were at 22.8 per cent, below the long-term historical average. And for the current Trump term, the average is 21.7 per cent.”"}],[{"start":219.52,"text":"Governments around the world have been turning more to short-term debt, which typically has lower borrowing costs, and is less sensitive to worries over the scale of issuance than its longer-term equivalent, instead closely tracking central bank interest rates."}],[{"start":232.72,"text":"One-year bills have a yield of about 4.4 per cent, compared with about 5 per cent on US 10-year debt and 5.3 per cent on 30-year debt."}],[{"start":241.94,"text":"But the need to constantly refinance bills is feeding anxiety about risks building up in the US public finances, after the Federal Reserve on Wednesday increased rates for the first time in three years to a range of 3.75 per cent to 4 per cent and signalled more rises to come."}],[{"start":256.64,"text":"“The particular focus on the short term leaves us really vulnerable to high levels of rollover risk,” said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget."}],[{"start":null,"text":""}],[{"start":268.04,"text":"The Fed purchases large amounts of bills — it bought $250bn over the first half of this year alone — meaning the amount of net issuance absorbed by the public market is significantly lower than the banks’ estimates. There, bills have ready buyers in the form of US money market funds, low-risk savings vehicles with assets of $8tn."}],[{"start":290.52,"text":"Bessent has also highlighted stablecoins — crypto tokens that track the dollar and are backed by safe assets such as short-term government debt — as another source of demand for bills."}],[{"start":300.92,"text":"Some analysts expect the Treasury’s beefed-up buybacks of long-term government debt, designed to curb rising yields, to be funded via short-term issuance, adding further pressure to increase the total amount sold."}],[{"start":313.48,"text":"A Treasury official said issuance was"}],[{"start":313.98,"text":"“informed by trends in structural demand”."}],[{"start":318.92,"text":"“Investor demand for Treasury bills has increased substantially, with money market funds’ assets under management around $8tn, stablecoins a key source of growth as Genius Act rules are finalised, and the Fed buying more than $300bn in bills so far this year,” the official said."}],[{"start":336.84,"text":"Ever since the Joe Biden era, the federal government has struggled to rein in its yawning fiscal deficits. The Congressional Budget Office fiscal watchdog expects the deficit to remain around 6 per cent of GDP for the duration of its 10-year forecast horizon — more than double the US Treasury secretary’s 3 per cent goal for the end of Donald Trump’s second term."}],[{"start":359.77,"text":"Bessent has said the US can grow its way out of its mountain of debt."}],[{"start":362.04,"text":"“In the US, we don’t have a revenue problem. We have a spending problem. So we’ve tried to contain the spending and then with 3 per cent growth, we grow our way out of this,” he said earlier this month."}],[{"start":380.14,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1789957992_3540.mp3"}