The Trump administration's aggressive financial operations attract attention. The bond market closely watches whether the Treasury Department will take action to push down long-term interest rates.

Market participants generally expect the US Treasury to maintain a relatively stable debt issuance plan in the key debt financing statement to be released on Wednesday, without any major adjustments. However, given the more aggressive policy operations in the financial sector by the Trump administration recently, the market remains highly vigilant as to whether the Treasury Department will unexpectedly take action to lower long-term yields. The next round of "quarterly refunding" auction size that the market is watching is expected to remain at $125 billion. This total has been unchanged since May 2024, setting a record for the longest period of "zero adjustments" since the mid to late 2010s when debt issuance was less than half of the current level. The Treasury Department may reiterate its previous guidance, indicating a plan to maintain stable issuance of interest-bearing bonds for "at least in the coming quarters." Treasury Secretary Benson had hinted before taking office that he might lean towards increasing the proportion of long-term bond issuance, but the current high long-term yield renders this strategy unattractive. The 10-year Treasury yield is currently around 4.25%, more than 80 basis points higher than the 12-month Treasury bill, leading to an increase in the cost of extending duration financing. With the continuous expansion of the fiscal deficit, the Treasury Department is eventually believed to need to increase the auction size of medium to long-term bonds in addition to short-term Treasury bills. The focus of debate in the market is whether the Benson team will delay this measure until 2027, or even possibly reduce the issuance of longer-term bonds to ease the pressure of rising yields. Guneet Dhingra, head of interest rate strategy at BNP Paribas in Paris, expressed that what the market is truly concerned about is whether the Treasury Department will reduce the auction size of interest-bearing bonds in the backdrop of strong demand for Treasury bills. He expects the auction size for the next quarter to remain unchanged, but the government may cancel the 20-year Treasury bond issuance that was restored in 2020 with a lukewarm response. At the same time, the role of the Federal Reserve in the bond market has also become a focus. In December of last year, the Fed announced the purchase of $400 billion in Treasury securities per month until April, mainly for bank reserve management rather than monetary policy adjustment. However, this objectively reduced the pressure on the Treasury Department to sell Treasury securities to the private sector, providing room for short-term debt financing. Additionally, President Trump's nomination of former Fed Governor Kevin Wash as the next Fed Chairman in May last week has rekindled discussions in the market regarding a "new coordination mechanism between the Treasury Department and the Fed." Wash had previously called for a "new agreement" to be reached with the Treasury Department, clarifying how the Fed will manage its Treasury investments in the future, but has not provided a specific plan. It is worth noting that if the Treasury Department hints at cutting bond issuance on Wednesday, it would be in contrast to its statement in November last year that it had "begun to consider increasing the sale of interest-bearing bonds in the future." At that time, the Treasury Department mentioned that it was assessing structural demand trends and weighing the cost and risk of different bond structures. Following a series of non-traditional measures taken by the Trump administration in response to voter concerns over living costs, investors have become doubtful about whether the Treasury Department's debt management will shift towards more "active intervention," such as large-scale purchases of mortgage-backed securities and pushing for caps on credit card rates. J.P. Morgan's rate strategy team pointed out that investors naturally wonder whether the Treasury Department might adjust its debt structure to align with the government's goal of "lowering long-term rates." Market rumors even include the complete cancellation of 20-year Treasury bond issuance or reduction in 30-year supply, in favor of expanding Treasury securities or 2-year bond auction sizes. However, any sudden turn would violate the Treasury Department's long-standing principle of issuing debt in a "regular and predictable" manner, a point that Benson himself highlighted at a financial market conference in November last year. Traders generally expect the next quarter's refunding auctions to include: $58 billion in 3-year Treasury bonds on February 10, $42 billion in 10-year Treasury bonds on February 11, and $25 billion in 30-year Treasury bonds on February 12. Prior to the announcement on Wednesday, the Treasury Department will update its borrowing demand forecast on Monday for the current quarter. In November last year, the Treasury Department projected a net financing size of $578 billion for the quarter, assuming a cash balance of $850 billion at the end of March. If the Treasury Department does increase the issuance of interest-bearing bonds in the future, some market participants believe the focus will be on the "belly" (2-7 year) range of the yield curve, while the supply of super long-term bonds like 20-year and 30-year bonds may remain unchanged. At the same time, investors will also be paying attention to whether the Treasury Department will adjust its old bond buyback plans and possibly increase the issuance of Treasury Inflation-Protected Securities (TIPS) to maintain their share in the overall debt structure. Several banks predict that the size of at least one TIPS auction in the next quarter could be increased. The current quarter's schedule includes: a reopening of the 30-year bond in February, a reopening of the 10-year bond in March, and a new issuance of the 5-year bond in April. Although the Treasury Department had indicated last year that it would pause the pace of issuance, traders believe that in the context of improving demand, the size of the new 5-year bond issuance in April could be increased by $10 billion to $270 billion. A rate strategist at Deutsche Bank stated that while the proportion of TIPS is still declining, the Treasury Department "may have room for one more slight increase," but this decision is still very delicate. Overall, the market expects the Treasury Department to maintain a stable debt issuance policy in the short term, but in the context of fiscal pressure, weakening global demand for long-term bonds, and changing government policy objectives, any slight wording adjustment could become an important trigger for bond market volatility.