华尔街猜测：贝森特「救美债」的下一招是什么？
- Core View: U.S. Treasury Secretary Bessent has adopted a proactive debt management strategy, upending the "regular and predictable" convention of the Treasury market. This has prompted Wall Street to focus on the November issuance plan, with expectations that increased borrowing will lean toward short-term bills and expanded buybacks to alleviate pressure on long-term yields.
- Key Elements:
- The Treasury announced a "Treasury twist operation" buyback plan, shifting market focus to the November 4 quarterly issuance statement, which has become an "unprecedented unknown" in the $31 trillion Treasury market.
- Wall Street expects the Treasury to signal that future borrowing increases will be executed through short-term bills and shorter-dated notes, while expanding the scale of buybacks, raising the likelihood of more aggressive options that directly reduce long-term bond issuance.
- The issuance guidance language has shifted from "increase" to potential "change," providing room to reduce long-end bond issuance and enhancing policy flexibility.
- The Treasury may raise the long-end buyback scale above the $40 billion minimum threshold while keeping the operation size confidential until the day before, reducing predictability and raising the bar for short sellers.
- Morgan Stanley notes that Treasury accounts could provide $80 billion to $200 billion for buyback funding, but expanding buybacks is merely transitional—the core event is how the weighted average maturity will be shortened.
- Citi predicts the Treasury may eliminate the 20-year bond, as its yield is similar to the 30-year and it has underperformed in trading; however, historically the 2001 halt of the 30-year bond occurred during a budget surplus, and with current high issuance levels, reduction will be more difficult.
- WisdomTree warns that reducing long-end issuance while shifting to other maturities is mathematically difficult, and the market may view it as manipulation, ultimately backfiring.
Original author: Dong Jing
Original source: Wallstreetcn
U.S. Treasury Secretary Scott Bessent has adopted a more proactive strategy in national debt management, a shift that is upending the long-standing predictability of the U.S. bond market and prompting Wall Street to urgently game out potential major adjustments in government borrowing strategy over the coming months.
According to Bloomberg News on August 26, following last week's announcement of a bond buyback program that Bessent dubbed a "Treasury twist," market focus has quickly shifted to the Treasury's quarterly refunding announcement on November 4. Strategists at Wall Street banks including BofA Securities and Deutsche Bank are warning that this upcoming announcement has become an unprecedented wildcard for the $31 trillion U.S. Treasury market.
Currently, mainstream Wall Street institutions expect that the Treasury may signal in November that future increases in borrowing will be financed through short-term bills and shorter-dated notes, while further expanding the scale of buybacks to alleviate pressure on long-term yields. Some investment banks have even noted that the probability of the more aggressive option of directly cutting long-term bond issuance is rising.
With long-term Treasury yields hovering near multi-year highs, the Treasury's departure from the long-standing convention of "regular and predictable" issuance is injecting new volatility into the market. Investors are now facing a new era of U.S. debt management and are reassessing their portfolio risk exposure accordingly.
November Refunding Announcement Becomes a Market "Wildcard"
Bessent's recent moves have broken the long-standing calm in U.S. policymaking. Meghan Swiber, managing director of U.S. rates strategy at Bank of America Corp, said the bond market is entering "a whole new world" of U.S. debt management.
Although Bessent has for now ruled out changes to the regular auction schedule and stated that the Treasury will stick to the current timeline until at least the next refunding announcement, market expectations have already shifted.
Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, noted that Bessent's actions have effectively turned the November refunding announcement into a massive wildcard. He emphasized that the possibility of reducing bond auction sizes can no longer be ruled out.
In addition, the Treasury made a subtle wording adjustment in its most recent refunding guidance, stating that officials are evaluating potential "changes" in future coupon and floating-rate note sales, rather than the "increases" mentioned in previous guidance. Analysts believe that this provides the Treasury with more leeway to reduce long-end bond issuance.
Strategic Game of Expanding Buybacks and Shortening Duration
According to reports, as a first step in the adjustment, the Treasury may look to its buyback operations. A team of strategists led by Steven Zeng at Deutsche Bank AG believes the Treasury may increase the scale of long-end operations above the initially suggested $4 billion minimum.
Officials may even keep the operation size confidential until the day before the operation, thereby reducing the predictability of the buyback program and significantly raising the bar for investors to short long-end Treasuries.
However, expanded buyback operations alone would struggle to achieve a substantial shift in the government's debt maturity profile. Unlike the Federal Reserve, the Treasury cannot create money out of thin air to finance its purchases. This means buybacks must ultimately be funded through additional issuance (most likely short-term bills) or by using cash in the Treasury's account.
Morgan Stanley noted that the Treasury's account could provide between $80 billion and $200 billion to fund buybacks.
Martin Tobias, rates strategist at Morgan Stanley, said the expanded buyback itself may just be a bridge until the November refunding announcement. He believes the event that ultimately triggers market volatility will be the way the Treasury shortens its weighted average maturity.
Tobias expects the Treasury to gradually increase sales of shorter-dated notes while keeping longer-dated bond sales stable, but over the past week, the risk of directly cutting long-end bond auctions has risen.
Tail Risks and Controversy of Cutting Long-Dated Issuance
Some strategists are considering more aggressive reform scenarios.
Citigroup has pushed back its forecast for larger auctions to 2028 and raised the tail risk that the Treasury may ultimately eliminate the 20-year bond. This maturity was reintroduced in 2020 by Steven Mnuchin, the first Treasury Secretary under the Trump administration.
Despite its shorter maturity, the 20-year bond currently yields similarly to the 30-year bond, which appears counterintuitive in the context of an upward-sloping U.S. yield curve.
Jason Williams, head of U.S. rates strategy at Citigroup, said that given the 20-year's poor trading performance relative to the 10-year and 30-year, the Treasury is likely to scale back its auctions, and the 20-year bond could benefit the most from future actions.
However, reports indicate that directly cutting long-dated issuance faces practical challenges. The Treasury stopped selling 30-year bonds in 2001, but the fiscal backdrop was vastly different at that time, with budget surpluses reducing the government's financing needs. In the current environment of high issuance volumes, any move to eliminate a particular maturity would force other maturities to absorb those borrowings.
Kevin Flanagan, head of investment strategy at WisdomTree, warned that cutting issuance at the long end of the curve and making up for it elsewhere seems mathematically very difficult. He said that if the Treasury goes down this path, the market will view it as manipulation, which could ultimately backfire.
