The US Treasury plans to increase the issuance of T-bills, focusing on the four, six, and eight-week bills. It does not expect to issue cash management bills. Following the debt ceiling raise, the goal is to reach cash balances of $500 billion by the end of July. President Trump is suggesting that the government rethink the issuance of long-term securities since the Federal Reserve has decided not to lower interest rates. This could change how securities are issued.

The Federal Reserve and Market Dynamics

The Federal Reserve cannot directly control long-term interest rates; those rates are set by the market. Even if the Federal Reserve Chair is more flexible, it doesn’t guarantee that long-term rates will drop alongside short-term rates. On July 9, the US Treasury will sell $65 billion in 17-week bills. On July 10, they plan to increase the sale of eight-week bills to $70 billion, up from $45 billion, and four-week bills to $80 billion, up from $55 billion. This indicates that the US Treasury is returning to heavier short-term borrowing. By increasing the issuance of four, six, and eight-week bills, the Treasury is not only restoring cash reserves after the debt ceiling suspension but also changing its short-term funding strategy. Announcements suggest that weekly offerings will be higher, with an increase in both the amount and frequency of auctions. The Treasury aims for a $500 billion cash balance by the end of July, which serves as a liquidity buffer rather than a strict limit. Yields on these shorter instruments may rise as supply increases, particularly if demand on the front-end doesn’t keep pace. In simpler terms, if buyers don’t show the same interest, yields will likely need to increase to balance the higher supply. The issuance increase is particularly noticeable for the shortest terms—bills maturing in four and eight weeks—where $25 billion increases per auction are now common. The Treasury is choosing not to issue cash management bills, showing trust in the regular schedule’s ability to meet funding needs.

Trump’s Longer-Dated Bonds Proposal

Trump’s proposal to reconsider long-term bond issuance, especially when near-term rate cuts are unlikely, adds political pressure to borrow over longer periods. His comments suggest that securing borrowing costs now could be fiscally wise if the Fed doesn’t lower rates soon. However, suggestions like this can clash with how yield curves react to market conditions rather than policy preferences. While Powell and the Federal Reserve Board might lean towards a supportive approach, that doesn’t guarantee changes in the long-term rates. Investors influence those rates, and if inflation expectations remain high or the risk of a recession seems low, long-term rates may stay high despite short-term measures. In brief, lower short-term rates do not automatically bring down long-term rates. With $65 billion in 17-week bills for sale and expanded auctions in shorter maturities scheduled for the next day, the auction dynamics next week will reveal where demand is coming from—money markets, banks, or foreign buyers. Keep an eye on the indirect bidding category for insights. The yields of bills in the secondary market will clearly show where demand is weak and where it is strong. The key takeaway is straightforward: pay close attention to auction coverage ratios and bid-to-cover rates next week. Bid tails, especially in the 6- to 8-week range, might indicate a shift in pricing power. We should closely follow short-tenor futures, where Treasury bill activity has immediate effects. Spread differences between bill maturities may widen as issuance moves away from recent levels. There are opportunities where supply struggles to find balance. The coming weeks will focus less on predicting policy and more on accurately interpreting liquidity shifts. Create your live VT Markets account and start trading now.

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