Treasury Secretary Bessent Eyes Longer-Term Debt Issuance, Dependent on Economic Conditions

Washington, D.C. - Treasury Secretary Scott Bessent stated that the government's plan to increase the proportion of long-term Treasuries in its debt issuance is contingent upon current economic circumstances, including inflation and the Federal Reserve's quantitative tightening program.

Market Considerations and Path Dependency

"That's a distant prospect, and we'll assess market demand," Bessent said in an interview with Bloomberg Television's "Bloomberg Surveillance" when questioned about "maturing out" Treasury sales. "It will depend on circumstances."

Bessent has previously criticized former Treasury Secretary Janet Yellen for raising the share of bills, maturing within a year, in the nation's debt, claiming it suppressed longer-term yields and stimulated the economy ahead of the election. However, earlier this month, Bessent maintained Yellen's debt issuance strategy.

Inflation Mitigation and Lengthening Maturity

Despite his past remarks, Bessent clarified that "the previous administration reduced some of the duration, and we haven't extended it."

"We are still witnessing impacts from 'Bidenflation,'" he stated. "As the market adjusts to our actions and inflation subsides, we will assess the timing of increasing longer-term debt sales. The ultimate objective is there, but I won't signal it at this stage."

Bessent reiterated his belief that cost savings from the DOGE efficiency campaign, economic expansion driven by deregulation and tax cuts (rather than government spending), and an increase in U.S. energy supply will mitigate inflation. This would lay the groundwork for lower long-term yields.

Federal Reserve's Role

After Bessent's remarks, longer-dated U.S. Treasuries gained value, with 10-year yields dropping by approximately three basis points to 4.50% as of 8:20 a.m. in New York. Yields remain significantly higher than pre-pandemic levels, when they were below 2%.

Bessent emphasized that the Federal Reserve is currently reducing its Treasury holdings, resulting in increased competition in the debt market. Minutes from the Fed's most recent meeting revealed that policymakers discussed pausing or reducing the quantitative tightening program.

"The Fed has hinted at potentially ending its balance sheet runoff," Bessent said. "It would facilitate extending the duration when I'm not competing with another significant seller."

Gold Holdings

In a broad-ranging discussion that included discussions about China, Ukraine, and Elon Musk's energy levels, Bessent dismissed speculation that the government might revalue its gold reserves to reduce borrowing needs or fund the establishment of a sovereign wealth fund.

"When we debated the sovereign wealth fund and I suggested 'monetizing the balance sheet,' I assure you that revaluing gold was not what I intended," Bessent said about the gold revaluation. When asked if it was on the table, he reiterated, "That's not what I meant."

The reserves' current value is $42.22 per ounce, a legacy official price from decades ago. Revaluing them at current market prices could increase their worth from $11 billion to approximately $750 billion. The Treasury chief stated he had no plans to visit Fort Knox, Tennessee, where a large portion of the U.S. gold reserve is kept. However, he reassured that "the gold is all there" and invited any senators to inspect it.