Extending Longer-Term Treasury Issuance Remains Elusive Amidst Fiscal Challenges
U.S. Treasury Secretary Scott Bessent recently indicated that the government is not actively considering extending the maturity of its publicly traded debt despite acknowledging its long-term benefits.
Speaking to Bloomberg Television, Bessent explained that the current environment characterized by high inflation and the Federal Reserve's quantitative tightening program makes it inadvisable to reduce the issuance of short-term bills. These bills, with maturities of less than a year, currently account for a significant portion of US debt and have been criticized by Bessent in the past for suppressing long-term yields.
However, Bessent acknowledged that the Biden administration's plan for debt issuance, which he inherited from his predecessor Janet Yellen, has remained unchanged. He also emphasized that the government has not reduced the duration of its debt since he took office.
Bessent expressed optimism that inflation will eventually subside, a development that would pave the way for lower long-term yields. He attributed his confidence to the administration's focus on cost savings, deregulation, tax cuts, and energy expansion.
The market reacted positively to Bessent's comments, with longer-dated Treasuries rising. Ten-year yields decreased by around 2 basis points to 4.51% as of 8:39 a.m. in New York. However, yields remain significantly above their pre-pandemic levels when they were below 2%.
Bessent also addressed market speculation regarding potential gold revaluation to reduce US borrowing needs or establish a sovereign wealth fund. He dismissed these notions, stating that such measures were not under consideration.
Turning to China, Bessent reiterated concerns about the country's economic imbalance, noting its reliance on exports. He expressed anticipation for a productive conversation with his Chinese counterpart the following day, emphasizing the need for China to prioritize domestic consumption.
Bessent also provided insights on the Chinese currency, the yuan, acknowledging its complexity. He characterized it as "cheap" based on academic models but acknowledged pressures for capital outflows. He emphasized the importance of ensuring foreign investors have confidence in the ability to repatriate their investments in the future.
Finally, Bessent reiterated the US government's commitment to a strong dollar policy, emphasizing that sound economic policies are essential for maintaining its strength.