US Treasury: to increase T-bill issuance, specifically initial increases in 4-, 6-, 8-week bills

US Treasury: to increase T-bill issuance, specifically initial increases in 4-, 6-, 8-week bills

The U.S. Treasury is set to significantly increase its issuance of Treasury bills (T-bills), specifically focusing on 4-, 6-, and 8-week bills. This move follows the passage of the "Big Beautiful Bill" by President Trump, which aims to finance the government's growing deficit through short-term debt instruments.

The Treasury's strategy to issue more short-term bills is a response to the need to manage the nation's fiscal deficit. With the passage of the bill, the Treasury is expected to borrow heavily in the short term to cover the government's spending and revenue gap. This approach is seen as a way to mitigate the cost of borrowing compared to longer-dated securities, which have yields closer to 4.35% [1].

While the issuance of short-term T-bills is a cheaper option for the government, it comes with risks. The reliance on short-term funding can expose the government to volatile or more expensive financing costs in the future. For instance, a sudden rise in inflation or a recession could increase the cost of short-term funding, as yields on T-bills rise [1].

The Treasury Borrowing Advisory Committee has recommended that up to 20% of the government's outstanding debt be in the form of T-bills. However, with the passage of the "Big Beautiful Bill," this percentage is likely to increase. Some analysts predict that the supply of T-bills may reach up to 25% of marketable debt [1].

The increased issuance of short-term T-bills is also expected to bring a fresh round of volatility to the government's shortest-term obligations. This shift in focus for bond-market investors has replaced earlier concerns about a rising federal deficit, which led to a sharp selloff in the 30-year bond [1].

The Treasury Department is aware of the relentless demand for front-end debt, with over $7 trillion in money-market funds seeking to invest in short-term assets. This demand is expected to support the increased issuance of T-bills [1].

The Federal Reserve's reluctance to cut rates, despite cooling inflation, is also contributing to the compression of term premiums. The Federal Reserve projects the Fed funds rate to remain above 4.5% through 2026, while long-term yields struggle to rise due to economic uncertainty [3].

The yield curve, which measures the difference between short-term and long-term interest rates, is expected to flatten as a result of this increased issuance of short-term T-bills. A flat yield curve can signal economic risks, such as a potential recession [3].

In conclusion, the U.S. Treasury's decision to increase the issuance of T-bills, specifically focusing on 4-, 6-, and 8-week bills, is a strategic move to manage the government's fiscal deficit. However, this approach comes with risks and is expected to bring volatility to the bond market.

References:
[1] https://www.morningstar.com/news/marketwatch/20250704210/now-that-the-megabill-has-passed-expect-a-ton-of-short-term-debt-to-be-sold-to-finance-the-governments-deficit
[2] https://www.tradingview.com/news/reuters.com,2025:newsml_L1N3T50G9:0-us-yields-rise-on-tariff-concerns-as-market-awaits-auctions/
[3] https://www.ainvest.com/news/rising-bill-supply-yield-curve-inversion-tactical-shift-fixed-income-portfolios-2507/