Wall Street sees $1tn short-term Treasury issuance as costs climb

Wall Street banks expect the US Treasury to borrow roughly $1 trillion over the coming year through short-term bill sales, a growing reliance on quick-maturing debt that leaves Washington exposed to rising interest rates. Bank of America forecasts $1.07 trillion of bill issuance, excluding funds raised to pay off maturing debt, in the fiscal year to September 2027. JPMorgan projects $1.09 trillion in calendar 2027, while Goldman Sachs estimates $961 billion. The shift toward bills, which mature within a year or less, comes as long-term borrowing costs sit at their highest level since 2007, driven by swelling public debt, heavy corporate issuance to fund artificial intelligence investment, and firmer growth expectations.

Treasury Secretary Scott Bessent has sought to contain long-term rates, surprising markets last month with plans to expand the department’s purchases of 10-to-30-year Treasuries. At the same time, his agency has continued the policy of expanding short-term debt sales to meet record borrowing needs, a practice Bessent previously criticized his predecessor Janet Yellen for pursuing, arguing she had “taken control of monetary policy” and “eased financing conditions substantially” ahead of the 2024 election.

The scale of the planned issuance is significant. Bank of America’s estimate would lift the stock of outstanding bills to roughly $8 trillion, or 24.3 percent of marketable Treasury debt, by next September. Goldman sees the share reaching 24.3 percent next year and 24.9 percent in 2028, close to the peak recorded during the pandemic. That trajectory sits well above the official target of “around 20 percent over time” set by the Treasury Borrowing Advisory Committee, which has described that level as the right trade-off between interest rate costs and the volatility of debt financing and rollover risk. Over the past two decades, bills have exceeded a quarter of outstanding debt only around the pandemic and the 2008 financial crisis. The longer-term average since the 1980s is 22.4 percent, though the share was regularly above 30 percent early in that period.

The trade-off is straightforward. Short-term bills typically carry lower yields than longer-dated Treasuries, which keeps the immediate cost of servicing the debt down. But they must be refinanced frequently, meaning the government’s interest bill becomes more sensitive to shifts in the Federal Reserve’s policy rate. Mark Cabana, head of US rates strategy at Bank of America, said the Treasury was “trying to balance supply and demand” in the government bond market, but risks a “larger and more volatile” interest bill by issuing so much short-term debt. Adam Josephson of Sakonnet Research echoed that view, noting “the more volatile its debt-servicing costs become.”

Not all observers see cause for alarm. Joe LaVorgna, a former economic counsellor to Bessent and now chief economist for the Americas at SMBC Nikko Securities, said the rise in the bill share was not “such a big deal.” The absolute numbers look large, he argued, because the deficits themselves are large, and viewed as a ratio the issuance does not look out of line historically. An administration official pointed out that since 1970, when the US began running budget deficits consistently, bill issuance as a share of total issuance has averaged 24.3 percent, and the current figure of 22.8 percent remains below that long-term average.

The debate over bill share is ultimately a debate about how much risk the Treasury should carry on its own balance sheet. Issuing more short-term debt holds down current borrowing costs and supports demand for longer maturities, but it concentrates refinancing risk in a narrower window. With the deficit still running at historic scale and long-term rates elevated, the Treasury is effectively betting that short rates will not spike in a way that makes its funding costs unmanageable. That bet may hold, but it leaves the government’s finances more exposed to the very volatility policymakers have spent years trying to suppress.