The structure of US debt continues to tilt towards the short end, the Ministry of Finance temporarily does not issue long-term bonds, relying on Treasury bills to fill the deficit.

The U.S. Treasury Department announced in its quarterly refunding statement on Wednesday that it will not increase the issuance size of medium and long-term notes and bonds for at least the next few quarters, and will continue to rely on shorter-term Treasury bills with lower financing costs to fund the federal budget deficit. This means that the structure of U.S. government debt will shift further towards the short end, with Treasury bills expected to account for an increasing share of the overall debt. The Treasury Department reiterated that the auction sizes for nominal notes and long-term bonds will remain unchanged for "at least the next few quarters." This decision reflects the high cost of issuing long-term debt in the current interest rate environment, while short-term debt yields have decreased significantly after the Fed's rate cuts, making the Treasury Department more inclined to issue short-term Treasury bills with maturities of one year or less. Currently, the yield on 10-year U.S. Treasury bonds is slightly above 4%, while the yield on 12-month Treasury bills is around 3.5%, creating a significant difference in financing costs. Although the fiscal deficit remains at historic highs, the Treasury Department's refunding auction size next week will remain consistent with the past year at a total of $125 billion, covering 3-year, 10-year, and 30-year bonds. This size has not changed since May of last year and is in line with the expectations of most primary dealers. It is widely believed in the market that the Treasury Department may not increase the issuance size of medium and long-term bonds until at least the mid-2026 or later, as the current fiscal team is unwilling to lock in borrowing costs while long-term interest rates remain high. Some Wall Street institutions have postponed their forecasts for an increase in long-term bond supply as a result. For example, J.P. Morgan in April still anticipated that the Treasury Department might announce an increase in the auction size of nominal bonds at this meeting, but the latest outlook has been adjusted to November 2026 or later. This is generally attributed to Treasury Secretary Yellen's preference to "buy time" through more short-term financing to avoid being burdened by long-term high-interest debt in the future. At the same time, the Federal Reserve may become a potential new source of demand in the U.S. bond market. Last week, the Fed announced that it would stop reducing its holdings of U.S. Treasury bonds starting from December 1, and plans to reinvest the funds from maturing mortgage-backed securities (MBS) into short-term Treasury bills, meaning that there will be incremental funds flowing into the U.S. short-term bond market in the future, providing some cushion for the Treasury Department to continue relying on Treasury bill financing. The Treasury Department also revealed that the issuance size of benchmark Treasury bills will remain unchanged until the end of November, with a slight reduction in the auction size of short-term debt in December, followed by an expected increase in issuance volume in mid-January next year to address the growth in government spending. If the Treasury Department continues to keep the issuance size of long-term bonds unchanged while the share of short-term debt continues to grow, the structure of U.S. debt will further lean towards the short end. According to estimates by Citigroup, by the end of 2027, the share of Treasury bills in the total outstanding debt will exceed 26%, far higher than the "long-term target of around 20%" recommended by the Treasury Borrowing Advisory Committee. Currently, this ratio has already risen to over 21% (as of September). Analysts point out that the large-scale issuance of long-term bonds during the COVID-19 pandemic will mature in the coming years, and if the Treasury Department does not expand the issuance of long-term bonds, the pressure on future debt refinancing may significantly increase, further exacerbating dependence on the short-term financing market and potentially increasing the refinancing risk exposure for the U.S. government.