Treasury yield surge reflects expectations of more long-term debt

New York: So, have you heard about the recent jump in U.S. Treasury yields? They’ve hit multi-month highs, and it’s all about expectations for more long-term debt. Traders are buzzing about how the new administration might shift focus from short-term borrowing.

Janet Yellen, the Treasury Secretary, has been selling a lot of short-term Treasury bills lately. These are debts that mature in a year or less, and they’ve been super popular with investors. But here’s the catch: this has pushed the amount of short-term debt above what’s usually recommended.

Now, with Trump’s team coming in, they’ll need to figure out how to handle this situation. Dan Mulholland from Crews & Associates mentioned that the market is adjusting to account for the fiscal situation and the expected increase in long-term debt as they move away from Yellen’s approach.

Interestingly, ten-year yields have been climbing faster than two-year yields, reaching 4.73% recently. This shift is reversing the unusual inversion of the yield curve we’ve seen for a while now.

Traders are feeling that relying too much on short-term debt isn’t the best move. It can lead to refinancing risks if the market takes a turn. The government’s debt has skyrocketed to $36 trillion, and they’re leaning heavily on borrowing to cover spending and budget deficits.

Right now, Treasury bills make up 22% of the total debt, which is above the recommended range. This percentage spiked during the pandemic but has fluctuated since then. While we might not see immediate changes in long-term debt auctions, the market is already preparing for it.

Experts think we could start seeing announcements for higher long-term debt auction sizes by late spring or early summer. It’s a waiting game, but the signs are there that changes are on the horizon.