U.S. Treasury Secretary Scott Bessent has indicated that any shift toward increasing the share of long-term debt issuance remains a distant prospect, citing economic uncertainties and market conditions as primary constraints. Speaking in an interview with Bloomberg Television on Thursday, Bessent emphasized that inflation, Federal Reserve policy, and broader fiscal considerations will dictate the timing of any strategic changes in Treasury issuance.
Cautious Approach to Extending Duration
“The previous administration shortened some of the duration, and we haven’t shortened it further—we’ve just kept it in place,” Bessent stated. While acknowledging the need for a longer-term debt strategy, he stressed that shifting toward issuing more longer-dated Treasuries is “a long way off.” Instead, he suggested that the Treasury would be guided by market demand and broader economic conditions before making any significant adjustments.
This stance marks a continuation of the cautious approach that has defined his tenure since taking office. While Bessent previously criticized former Treasury Secretary Janet Yellen for shortening the average maturity of U.S. debt issuance, he has yet to implement measures to reverse that strategy.
Inflation and Federal Reserve Policy Weigh on Debt Strategy
Inflation remains a key challenge, with the lingering effects of recent price pressures complicating Treasury’s ability to extend debt maturities. Additionally, the Federal Reserve’s ongoing quantitative tightening (QT) program—its effort to shrink its balance sheet—has introduced further uncertainty into the bond market.
“The Fed’s balance sheet runoff increases the supply of Treasuries. It’s easier for me to extend duration when I’m not competing with another big seller,” Bessent noted, alluding to the impact of the Fed’s actions on debt issuance strategy. While there is speculation that the central bank may slow or halt QT, no concrete timeline has been provided, making Treasury’s next moves highly dependent on evolving conditions.
Market Conditions Will Determine Timing
Bessent framed the eventual shift to longer-term debt issuance as “path-dependent,” indicating that factors such as inflation trends and investor appetite will dictate when such a transition might occur. He suggested that once the market absorbs the current administration’s fiscal and regulatory measures—including efforts to cut costs and stabilize revenue—there may be greater flexibility to alter the debt issuance mix.
“I believe, over the medium term, it’s going to play out as it becomes clear that everything the administration is doing will be disinflationary,” Bessent said. He pointed to policies aimed at reducing energy costs and regulatory burdens as measures that could create a more favorable environment for adjusting debt maturities.
Treasury Yields Reflect Cautious Outlook
The bond market’s reaction to Bessent’s comments was measured, with the U.S. 10-year Treasury yield (US10Y) falling three basis points to 4.51% in Thursday trading. Meanwhile, the six-month Treasury bill yield slipped slightly to 4.366%. These movements suggest that investors remain focused on near-term policy signals rather than anticipating an imminent shift in Treasury’s debt strategy.
Looking Ahead
For now, Treasury’s stance remains one of patience. Bessent’s remarks reinforce the view that any pivot toward longer-duration debt will not come until inflationary pressures subside and the Federal Reserve’s policy direction becomes clearer. As market participants await further signals, the outlook for U.S. debt issuance remains closely tied to broader economic and fiscal developments.