The countdown has started to November 3, and bond investors need to start paying attention. On the day after the US midterm elections, the US Treasury will publish its next quarterly issuance plan. This is expected to accelerate an existing trend toward short-term funding for America's $40tn debt, probably by slashing or ending sales of 20-year Treasuries and/or buying back more long-term debt. In financial terms, US Treasury secretary Scott Bessent appears to be reducing the average weighted maturities of Treasuries, which currently stand under six years, compared with 13 years in the UK and around eight years in Germany, France and Japan.
Critics would say this move is highly hypocritical. In May 2024, Bessent slammed his predecessor Janet Yellen for shortening debt maturities, arguing that this makes a country dangerously vulnerable to rate swings. Treasury officials say short-term rates are currently lower than long-term ones. Structural shifts are also boosting demand for short-term debt. The fast-expanding stablecoin sector now holds more Treasuries than Saudi Arabia and Germany combined. Foreign investors are also tilting short-term, and Fed research shows that hedge funds doubled their US debt holdings between 2023 and 2025, now controlling about 8.5 per cent of the market.
Bessent's view on the economy may also be driving the shift. He believes high energy prices are transitory, like the frenetic AI issuance, and that AI will boost productivity enough for the US to grow out of its debt. He thinks long-term market rates are mispriced and wants to exploit that through what he calls "activist" arbitrage. Since taking office, he has changed regulations to encourage US banks to buy more bonds, backed the growth of stablecoins, discouraged Japan from reducing its Treasury purchases and bought back old bonds to lower yields.
Bessent may turn to other tools, such as asking the Fed to restart quantitative easing, though Kevin Warsh, the new Fed chair, would likely resist. He could also use America's gold holdings to back bonds or revalue the gold. Given that he has recently made Judy Shelton an adviser, a passionate campaigner for a gold peg, investors should watch closely.
Source: Financial Times Markets · Summarized by HeadlinesBriefing