U.S. Treasury Secretary Sees No Reason for Long-Term Debt Increase Amid High Yields

The U.S. Treasury Secretary has stated that given the current yield levels, there is no rationale for increasing the issuance of long-term debt. However, the Secretary hopes that as inflation eases, yields across all maturities will decline.

When asked if the government would increase the proportion of long-term debt issuance, the Secretary responded, "Why would we do that? The appropriate time for this action was in 2021 and 2022."

Last year, the Secretary had criticized the previous Treasury Secretary's preference for issuing short-term debt, stating that this approach aimed to keep long-term borrowing costs low to stimulate the economy ahead of elections. However, since taking office, the current Secretary has continued the debt issuance strategy of the previous administration.

The Secretary questioned the logic of issuing long-term debt at current yield levels, stating, "If the interest rate is higher than the long-term rate by more than one standard deviation, why would we do this at such a rate?"

Currently, the yield on 10-year U.S. Treasury notes is approximately 4.26%, the yield on 2-year notes is 3.73%, and the yield on 12-month Treasury bills is 3.81%.

When asked about the expected level of 10-year yields by the end of this year, the Secretary indicated that this would depend on various factors. However, the Secretary noted, "As inflation decreases, I believe the entire yield curve may shift downward in unison."

The Secretary also expressed concern about the current hesitation among Federal Reserve policymakers in making rate decisions, stating, "I am worried that they are currently only looking at their feet rather than looking ahead."

The Secretary emphasized that there has been no inflation caused by tariffs, and in terms of its impact on consumer prices, the effect of import tariffs is relatively short-lived.

Regarding the succession plan for Federal Reserve Chairman Jerome Powell, the Secretary mentioned two potential options: appointing a new member to fill a vacancy on the Board of Governors in January next year, or selecting an existing Fed governor to serve as chairman.

The Secretary noted that there are currently worthy candidates within the Federal Reserve, but did not specify any particular individuals. Observers had previously speculated that Governor Christopher Waller could be a potential successor to Powell, as Waller had suggested that policymakers might begin cutting rates as early as July. Waller was appointed to the Federal Reserve Board of Governors during Trump's first term as president.

The Secretary also mentioned that there will be a vacancy for a 14-year term on the Board of Governors in January, and one possibility is to fill this vacancy with someone who could take over as chairman when Powell steps down in May.

Governor Adriana Kugler's term will end in January next year.