Treasury Bill Barrage Is Just a Prelude to Longer-Term Debt Deluge

The barrage of fresh Treasury bills poised to hit the market over the next few months is merely a prelude to what’s yet to come: a wave of longer-term debt sales that are seen driving bond yields even higher.

Sales of government notes and bonds are set to begin rising in August, with net new issuance estimated to top $1 trillion in 2023 and nearly double next year to fund a widening deficit. The Treasury is already in the middle of an estimated $1 trillion bump in bills as it seeks to replenish its cash coffers in the wake of the debt-limit deal.

It’s an explosive mix for borrowing costs as debt sales are swelling and the Federal Reserve continues to reduce its balance sheet at a time when traditional buyers of Treasuries overseas are discouraged by currency hedging costs.

“A worsening fiscal profile, amid fairly modest spending cuts, suggests that the upcoming supply deluge will not be limited to T-bills,” wrote Anshul Pradhan, head of US rates strategy at Barclays Plc. “The Treasury will soon need to increase auction sizes meaningfully across the curve. We believe the rates market is too complacent.”

Barclays strategists predict the net rise in coupon-bearing debt from August to year-end will be nearly $600 billion. And that would only ramp up in 2024, they say, with an annual figure of $1.7 trillion. That would be nearly double this year’s expected debt issuance.

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