Trump and Bessen's specific tone: After the interest rate decrease, the U.S. will issue more long-term bonds
U.S. President Trump and Treasury Secretary Mnuchin recently publicly stated that they would wait for Powell to step down and for interest rates to decline before considering the issuance of long-term government bonds, attempting to suggest a "timing" strategy to replace the "conventional and predictable" bond issuance principles that the U.S. Treasury has adhered to for decades. This move has raised market concerns, as it is believed that such speculative operations could increase risk premiums and even inadvertently raise borrowing costs
U.S. President Trump and Treasury Secretary Mnuchin are in agreement, claiming they will wait for interest rates to decline before considering the issuance of long-term government bonds.
According to the latest report from The Wall Street Journal, the Trump administration is deviating from the Treasury's decades-long practice of "regular and predictable" debt issuance principles, opting instead for a more speculative "timing" strategy.
"What I want to do is issue very short-term bonds, wait until this guy (Powell) is out, interest rates drop significantly, and then switch to long-term," Trump has previously stated that he prefers to issue short-term bonds with maturities of six to nine months before Federal Reserve Chairman Powell leaves office and interest rates drop significantly.
This time, even Treasury Secretary Mnuchin, who calls himself the "chief bond salesman of America," has personally discussed waiting for interest rates to decline before considering the issuance of long-term government bonds. He had previously hinted that increasing the issuance of long-term bonds was necessary before taking office in the Trump administration.
Analysts believe that for decades, the U.S. Treasury's debt management has been characterized as "boring," which is a deliberate design. Its officials have consistently emphasized that their goal is not to obtain the best rates by predicting the market, as they worry that such attempts could create uncertainty and speculative behavior, ultimately raising borrowing costs. However, the new rhetoric from the Trump administration is breaking this norm. Publicly discussing "timing issuance" could expose the government's borrowing decisions to higher risks. If the market perceives that the government's issuance plans are no longer predictable, it may demand a higher risk premium, thereby inadvertently raising interest rates.
This potential strategic shift comes as the U.S. government faces an annual fiscal deficit of about $2 trillion. The market is closely watching the U.S. quarterly refinancing statement to be released this Wednesday for clues on whether the Trump administration will formally translate its public statements into policy.
Term Choices Under Massive Deficits
The reason borrowing has become an increasingly important issue is that the scale of U.S. government borrowing is unprecedented.
The U.S. federal budget deficit currently reaches about $2 trillion annually, while the total national debt is nearing $30 trillion. In filling the funding gap, the government needs to weigh different maturities of debt. Short-term borrowing is usually cheaper but makes financing costs more volatile, facing the risk of skyrocketing costs if inflation rebounds and the Federal Reserve is forced to raise rates.
In contrast, long-term borrowing costs are more predictable but typically require paying a higher initial interest rate. The Trump administration's current preference for short-term debt is a choice made in this context.
U.S. Treasury's Official Stance Remains Cautious
Despite the president and secretary frequently signaling "timing," the Treasury's official stance remains cautious.
U.S. Treasury Deputy Secretary Michael Faulkender stated in a written statement that the Treasury remains committed to issuing bonds in a "regular and predictable" manner, referencing the opinions of market participants. He stated:
It is dishonest to imply that this administration has deviated from long-standing debt management practices when the scale of Treasury auctions and market guidance has not changed since the last administration Despite the official attempt to downplay the strategic shift, most analysts expect that the Treasury may maintain the current pace of medium- and long-term government bond issuance in the upcoming quarterly refinancing statement. Analysts believe that to meet the government's growing financing needs, this plan may soon require supplementing funds through the issuance of additional short-term Treasury bills, which is consistent with the short-term strategy favored by Trump
