Bank of America: US dependence on government debt instruments brings about a loose financial environment.

The U.S. government plans to rely more on Treasury bills for financing, which will postpone the expected increase in long-term debt issuance and bring a more accommodative financial environment to the market. U.S. Treasury Secretary Scott Bessent stated this week that increasing long-term bond sales at current interest rate levels is not reasonable. U.S. bank analysts now predict that the Treasury will keep long-term debt auction sizes stable until fiscal year 2027, instead of increasing them starting in February 2026 as previously expected. The government needs to increase the size of debt auctions at various maturities to finance the expansion of the budget deficit. However, compared to increasing long-term bonds, increasing the issuance of short-term bills will lower interest rates and widen long-term spread, creating a more accommodative financial environment. U.S. banks estimate that increasing reliance on Treasury bills could reduce the market's absorption of duration by around $1 trillion equivalent in 10-year terms, equivalent to a drop of about 30 basis points in 10-year Treasury yields. This strategy is different from the Federal Reserve's quantitative easing to stimulate the economy by purchasing bonds, but its impact on the financial environment is similar. However, an increase in bill issuance may bring risks of financing pressure. Analysts stated that bill supply will show seasonal fluctuations, with peak supply expected in July to November this year and February to March next year, which could "disrupt the financing market and require Fed intervention."