US fixed income research: US Treasury issuance in 2025-26 – What to expect?

• Markets cheered Trump’s decision to pick hedge-fund manager Scott Bessent as the next US Treasury Secretary.

• Substantial easing of fiscal policy will require active use of the issuance strategy. There is a compelling argument for continuing the reliance on T-Bills.

• Increasing the proportion of T-Bills in the total outstanding debt is not without cost, but it gives the administration the opportunity to mitigate the impact on term premiums despite fiscal expansion.

Over the weekend, Donald Trump announced his nomination of hedge fund manager Scott Bessent as the next US Treasury Secretary. Bessent, a Wall Street veteran and adviser to Trump, brings a robust understanding of financial markets, which is critical given the administration's economic goals.

One of Bessent’s primary responsibilities will be to manage the treasury's maturity structure, especially as the administration plans to increase spending significantly. This includes extending the Tax Cuts and Jobs Act beyond 2025, eliminating taxes on Social Security benefits, and reducing the corporate tax rate from 21% to 15%. The Wharton Budget Model predicts that these policies will increase the deficit by USD153bn in fiscal year (FY) 2025 and USD446bn in FY26, when accounting for the economic impact. A crucial issue for bond markets will be whether these fiscal changes will require a significant change in the issuance strategy.

Reliance on T-Bills has been the modus operandi the past years

At the latest Quarterly Refunding Announcement (QRA) in October, the Treasury decided to keep the quarterly coupon unchanged through the last part of 2024, while signalling that this status quo was expected to be maintained for ‘at least’ the next several quarters with any additional financing needs met by issuance of T-Bills. Such explicit guidance on the issuance strategy was introduced by Treasury Secretary Yellen in 2023 and should be seen as a way of controlling financial conditions by steering markets away from pricing a nearterm increase in the supply of duration, very much like forward guidance in the monetary policy toolbox. Since the last debt ceiling conflict was resolved in 2023, the share of TBills relative to total marketable debt has risen from 16.5% to 22%, which is above the 15- 20% recommendation from the Treasury Borrowing Advisory Committee (TBAC). The question is whether incoming TS Bessent will try to adhere to this advice in terms of the issuance composition – or simply continue Yellen’s line.

For how long will current auction sizes be sufficient?

In this section, we explore the implications of a more expansionary fiscal policy on the potential structure of Treasury issuances. Readers can follow the calculations in table 1. Note that all estimates are based on fiscal years (FY), running from October to September (e.g. FY24 = Oct 23 – Sept. 24). As of today, the Treasury offers an annual tranche of notes, bonds, TIPS and FRNs worth around USD4,600bn per fiscal year, which covers both refinancing of existing debt and additional financing needs. The main reason to raise new cash is the deficit, but the financing needs are also impacted by Fed redemptions (QT), changes in the Treasury cash balance and other financing means such as costs related to direct student loans.

Download The Full US Fixed Income Research