US Treasury Secretary Scott Bessent is likely to reduce the auction sizes for long-dated government bonds - and could even cancel sales of 20-year debt altogether, according to Citigroup Inc.
The bank's base case is a $3 billion reduction per auction for both 20- and 30-year bonds, which would be funded by additional T-bill issuance, according to head of US rates strategy Jason Williams. That would be announced at the Treasury Department's next quarterly refunding announcement on Nov. 4.
The Citi strategist recommended in a late Friday note that clients position for 20-year bonds to outperform 10-year notes on the prospect of a "reduction, or perhaps cancellation, of the 20-year bond."
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Long-Dated US Borrowing Costs Have Soared
Photo Credit: (Photo: Bloomberg)
A first hint at such a change could come in a survey of dealers scheduled for next Friday. That questionnaire stands to offer a "bullish catalyst" for the trade, according to Williams, if the department asks major financial institutions whether demand for long-end debt is being "partly cannibalized" by high-quality hyperscaler issuance.
"While we do not think such IG supply has impacted the overall level of rates, we do think pension funds could be leaning into long-end IG bonds more than they typically have," he wrote.
Across Wall Street, debate has been growing over what Bessent might do to help reign in US government bond yields near multi-decade highs. Earlier this week, strategists at BNP Paribas SA said they were skeptical that such a move would be effective at lowering government borrowing costs.
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