Wall Street Expects US Short-Term Debt Issuance to Exceed $1 Trillion
Major investment banks on Wall Street expect that the issuance of short-term Treasury bills (t-bills) by the US Treasury will approach or even exceed $1 trillion in the coming year. This is due to the rising costs of long-term financing, forcing the Treasury to rely more on short-term debt to manage immediate interest expenses.
Specific forecasts have been released: Bank of America estimates $1.07 trillion, JPMorgan estimates $1.09 trillion, and Goldman Sachs provides a more conservative estimate of $961 billion, with the range calculated up to the end of the fiscal year 2027. Currently, the pace of short-term debt issuance is rapid, with the weekly issuance of t-bills exceeding $500 billion in recent months; short-term debt accounts for about 22% of the total outstanding national debt, while the Treasury Borrowing Advisory Committee (TBAC) suggests a safe range of 15% to 20%, which has now exceeded the upper limit.
The background of rising long-term yields is a direct incentive for this round of short-term debt issuance. On August 18, when the total US national debt surpassed $40 trillion, the yield on 30-year Treasury bonds reached 5.34%, a 19-year high; by mid-September, the 10-year yield also surpassed 5%, marking another 19-year high. Treasury Secretary Yellen introduced the so-called "debt reversal" strategy—expanding short-term debt issuance to reduce near-term interest payment pressure while increasing the repurchase of existing long-term debt, with the size of single repurchases doubling from $20 billion to at least $40 billion.
However, the actual effectiveness of the repurchase operations has been questioned by Wall Street. Goldman Sachs strategists George Cole and William Marshall stated that relative to the approximately $32 trillion Treasury market, this repurchase effort is "insignificant" and "cannot address the main sources of long-term volatility"; even if the scale is further expanded, it is "unlikely to effectively reset yield levels." Market reactions also confirm this assessment: after the announcement of the repurchase expansion on August 18, yields briefly fell by 9 basis points but nearly fully reversed within two days.
Goldman Sachs and Wells Fargo pointed out that the real issues needing resolution are macro-level problems—slowing economic growth, declining inflation, clearer Federal Reserve policy paths, fiscal consolidation, and slowing corporate bond issuance, rather than technical adjustments to the debt maturity structure. Currently, the US annual fiscal deficit is about $2 trillion, and interest payments on national debt are expected to exceed $1 trillion for the first time this fiscal year.
The demand side for short-term debt is currently supported by two main forces: the Federal Reserve's ongoing bond purchases and the approximately $8 trillion money market funds. Additionally, the "GENIUS Act," effective July 2025, requires stablecoin issuers to invest 100% of reserves in 93-day Treasury bills, which could theoretically bring $800 billion to $1 trillion in incremental demand to the short-term debt market if the stablecoin market expands to $2 trillion by 2028—this is also one of the reasons the Treasury dares to continue increasing short-term debt issuance. The Treasury has temporarily reduced immediate interest expenses, but the cost is a larger refinancing scale in the future, making it more sensitive to fluctuations in short-term rates; once short-term rates rise due to inflation or liquidity tightening, the costs will quickly translate into fiscal expenditures.
At the current pace, the proportion of short-term debt in outstanding national debt may rise to about 24.3% by the end of fiscal year 2027, approaching the peak level during the pandemic; the Treasury has also been reported to potentially utilize nearly $1 trillion in Treasury General Account (TGA) funds to provide additional ammunition for repurchase operations.
Source: Public Information
ABAB AI Insight
Yellen's "reversal operation" strategy is not new, but it is the opposite direction of the Federal Reserve's "reversal operation" from 2011 to 2012 (selling short and buying long to lower long-term rates)—this time, the Treasury is actively expanding short-term debt issuance to alleviate immediate interest burdens while using limited repurchase operations to symbolically support long-term prices. Two other actions are noteworthy: in August, it was reported that Yellen might utilize nearly $1 trillion in Treasury General Account funds to provide ammunition for repurchases; earlier in early August, in the quarterly refinancing statement, she also refused to commit to providing forward guidance on debt issuance to Wall Street. These three actions together indicate a debt management style that leans towards "watching and adjusting while operating, retaining operational flexibility," rather than locking in rules to stabilize market expectations in advance.
In terms of funding pathways, the main buyers of short-term debt are money market funds (approximately $8 trillion) and the Federal Reserve's ongoing bond purchases, which is a typical "short money covering long gaps" logic, essentially rolling refinancing risks into the future. More notably, the new buyers created by regulation: the "GENIUS Act" mandates stablecoin issuers to invest 100% of reserves in 93-day Treasury bills, effectively creating a group of short-term debt buyers with a mandatory purchase obligation, with theoretical potential reaching $800 billion to $1 trillion. The motivation for this influx of funds is unrelated to traditional bond investors' yield judgments but is purely compliance-driven, which introduces a new variable into the demand structure for Treasury bonds that has not existed before.
From an industry perspective, this "using short-term debt to cover long-term debt gaps" approach historically resembles the short-term financing strategies of Latin American countries before the 1980s debt crisis—using rolling short-term debt to delay long-term repayment pressures, which can indeed reduce interest expenses in the short term but leaves interest rate risks and refinancing risks for the future. The current US Treasury market is in a "structural imbalance accumulation phase": the proportion of short-term debt has exceeded the Treasury's self-defined safe range of 15% to 20%, approaching the 24.3% level for fiscal year 2027, close to the peak during the pandemic; a typical feature of this phase is that issuers actively use duration structure to exchange for short-term breathing space.
Essentially, this is a "risk transfer of debt duration structure," rather than a reconstruction of the industrial chain or a transfer of pricing power. Mechanistically, the Treasury is transforming refinancing risks from "relatively fixed costs determined by long-term rates" to "floating costs determined by short-term liquidity and policy rates"—this means that every future interest rate decision by the Federal Reserve will transmit more quickly and directly to the Treasury's actual interest payment costs. Monetary policy and fiscal sustainability are more tightly bound, and any tightening of short-term liquidity could directly raise government financing costs, creating a feedback loop of "monetary policy tightening → short-term debt costs rising → fiscal pressure increasing."
ABAB News · Cognitive Law
Short-term debt saves interest but owes tomorrow.
A regulatory decree can create a group of buyers.
The shorter the term, the faster the risk exposure.