Treasury believes its current auction sizes leave it well positioned to address potential changes to the fiscal outlook and to the pace and duration of future SOMA redemptions. Based on current projected borrowing needs, Treasury anticipates maintaining nominal coupon and FRN auction sizes for at least the next several quarters.
That language was all that mattered in Wednesday’s quarterly refunding announcement from the US Treasury which, like every other key US government agency and department, is under new management.
Officially, Scott Bessent runs Treasury. He’s an adult, or so we’re told, and that means that even if US national intelligence is now the purview of an unwitting Kremlin dupe and a Bashar al-Assad sympathizer, and even if we’re entrusting public health to a former heroin addict and a current anti-vaxxer, and even if the US military’s now under the command of a hard-drinking, 44-year-old Fox News host, Treasury’s in good hands.
I believe it on some days, but not on most. It’s not that I doubt Bessent (actually I do, because anyone who’d sign up to participate in Donald Trump’s grotesque menagerie has ulterior motives, designs on power for its own sake or else is just a narcissistic moron willing to sacrifice democracy for their own vainglory), it’s that I don’t think he’s really in charge, where that means I don’t think he has enough political capital to fend off the colorful cast of brazenly assertive characters who hold real sway with Trump. Characters like Elon Musk.
I’m going to leave that there, for now, because I don’t want to set a precedent early on in Trump’s second term for chasing every hysterical Musk headline emanating from The New York Times, Bloomberg and so on, but allow me a quick aside.
Readers will kindly note that I spent the better part of three years warning that Musk was morphing into a nefarious demigod bent on (literal) world domination, a contention that garnered scoffs and outright laughter not so much from the audience here, but from the (very short) list of personal contacts I still maintain. Fast forward to 2025 and seemingly every other media headline laments (or celebrates, depending on where you get your news and “news”) Musk’s successful effort to capture the US government. Increasingly, that effort entails “DOGE” incursions into Treasury territory, and I haven’t seen or heard much in the way of pushback from Bessent, with allowances for the fact that he’s only been in office for — checks notes — eight days. Aside over.
Coming quickly back to the QRA, think of the language quoted here at the outset as Treasury’s version of forward guidance. (Actually, you don’t have to “think of it” that way, that’s just what it is.) The wording, and specifically the bit about “maintaining nominal coupon and FRN auction sizes for at least the next several quarters,” means the US doesn’t intend to increase the size of note and bond sales in the medium-term. That issuance outlook dates back four (five, counting Wednesday’s QRA) quarters. It was inaugurated early last year, and marked the culmination of the Yellen Treasury’s efforts to beat back the last term premium scare.
As the figure above reminds you, Bessent came into office with the term premium having widened out to levels beyond those which spooked Yellen, reflecting the market’s assumptions about the read-through of a “red sweep” US election outcome for fiscal policy.
Everyone knows Bessent will have to lift coupon sales at some point, it’s just a matter of when. Although the term premium’s come in a bit recently, it’s still ~50bps, which is to say loitering in and around the October 2023 wides. Removing the forward guidance for unchanged coupon auction sizes “too early” had the potential to spark another leg wider, with adverse consequences for a US rates complex that’s still prone to volatility.
And, so, that language was retained. Ostensibly anyway, that means auction size increases are a Q4 event, or even a 2026 event. I doubt that’s a safe bet, though. In case you haven’t noticed, Trump has a lot of ideas, most of them expensive, and no, he can’t fund them with tariffs.
I should quickly mention the suggestion that Bessent might try to enshrine criticism of Yellen’s issuance strategy into Treasury’s plans going forward by methodically terming out America’s debt profile, but as discussed here on any number of occasions, that was all just rhetoric. Treasury’s capacity to issue strategically — i.e., as a corporate treasurer might — is inherently limited by any number of factors. Bessent knows that.
It’s worth noting that the TBAC report suggested the forward guidance be tweaked or even jettisoned. “The Committee uniformly encouraged Treasury to consider removing or modifying the forward guidance on nominal coupon and FRN auction sizes that has been in the refunding statement for the past four quarters,” the Committee said. “Some members preferred dropping the language altogether to reflect the uncertain outlook.”
Uncertain indeed.
The latest real estate deal proposal from the artful deal maker has all the makings of a money pit. Not only will the residents resist removal with their life but if you shoot at them, they will shoot back. Not only that but a few other countries are likely to take pot shots at you, while Isreal stands by as that is not their fight.
There are few other places where real estate rehabilitation is equally bad, one being slums in Rio.
However got to hand it to the hard right Isreali’s to attempt to offload property they do not own and cannot control. They found a real estate mogul wanna be thirsty for a deal headline to announce.
Yeah, I mean that idea of Trump’s (on Gaza) is so naive that it’s barely worth mentioning. I have to be very discerning with him when it comes to what deserves coverage. It’s easy enough to say, “Well of course it deserves a dedicated article. Or two. Or three. Or 20, even!”
But does it really? The US is going to occupy Gaza, then rebuild it as Mideast Miami that also houses a forward American military base? Come on. Even if you want to argue it’s a good idea (“Nothing else has ever worked, why not?!”), the English language fails me when it comes to sourcing strong enough language to convey just how far-fetched it is.
He might as well be saying, “Look, Venus is just sitting up there for the taking. They say it’s hot, and I’m sure it is, but a lot of things are hot. Like Tabasco. And we eat that! Think of it.” “Mr. President, is it realistic to bel—” “Bad, terrible gerbils.” “Sorry, what?” “Excuse me. Excuse me. Can I finish?” “Ok?” “Listen, we’re gonna settle Venus, ok? We’re gonna do it, and I told Marco to go there and talk with their people, and we’re gonna get a deal done.”
Ok, fine. Here: https://heisenbergreport.com/2025/02/05/riviera/
Wait, you think Gabbard is an unwitting dupe? Sincere question. My own working assumption is that she’s a quite witting asset of the Kremlin. Self-interested, sure, not some committed Alger Hiss true believer or secret Manchurian Candidate or anything, but still, completely aware of whose side she’s on and whose interests she’ advancing.
This article hits on the many reasons why your writing is so valuable. You are explaining a topic that I had never even known about prior to reading about it here while staying level-headed in the face of Trump’s onslaught of craziness but don’t sugarcoat the danger that Trump and Musk pose to society and government.
On the first point, the public’s familiarity with markets and finance (for the one’s who pay attention at all) is through websites like CNBC or Yahoo Finance or Seeking Alpha which it’s own wasteland (but how I discovered your writing!). They don’t even scratch the surface of the underlying dynamics driving the market and it makes me wonder why they can’t hire writers that do at least a little better job. Maybe it’s because the people who actually know this stuff are too busy making money on Wall St or I’m not aware of other writers who can talk about this stuff knowledgeably, but it’s been eye-opening for me (and saved me from continuing to make stupid mistakes thinking I knew better).
On the second point, it’s good to have a reminder that I don’t need to react to the daily headlines about comments and actions that, on their own, would’ve been huge scandals in any other administration. Trump hacked our brains and understood that if everything is an emergency, nothing is. He’s the biggest troll on the planet with the possible exception of Musk. You can’t beat trolls by reacting angrily to everything they say and do.
On the last point, it is important to recognize the reality of the situation though. Trump and Musk are putting the norms of society and government at risk. We don’t know what the consequences will be, but the odds of something going very badly are much higher than they would be otherwise. I like to hear contrarian takes from conservative writers at the NYT or Nate Silver, but they often fall back to a position of Trump’s success being the fault of liberals. Maybe it is, but that doesn’t absolve Republicans or low information voters of their actions. Focusing on the things that needed shaking up and justifying Trump by pointing to a couple areas where he may have a point (but not a real solution) is waving away the threats the Trump and Musk pose. They are going to cause a lot of suffering and that’s only tangentially the responsibility of democrats. The reality is we are a low information country with lots of baggage regarding race and gender and there isn’t a magic wand that’s going to wave that away.
All that to say, thank you for what you do!
Anyway,
The scariest thing to me is that first Trump has seemingly stumbled on a plan for the quiet elimination of our Congress from its position in our government of checks and balances. Secondly, look at the really big step, total replacement. What’s on the docket? Support for our educational system, to be replaced by MAGA ticks that will be nearly impossible to remove once they have their GS jobs. They will see to it that our students are supplied with text books eliminating science and real history, just like Texas does now and Russia has done for decades. He will replace our national police force with MAGA only soldiers (think) SS. Replace the CIA with foreign sympathizers. Put in two complete amateurs to end support of our health and safety. The problem is that even if trump dies, doesn’t manage an extra term, whatever, he will have succeeded to completely poison the well that once was the US. Notice, no actual plan for any of this has actually been presented to Congress.
So about that aside – does all the frenetic activity imply autocracy is the plan?
Trump I realize I genuinely shouldn’t try to guess what he is thinking – he is so alien and from another culture to me, but Musk is smart enough that he should know the political pendulum will swing the other way eventually and there will be hell to pay. If nothing else, at least the same playbook is open to the other side now. So this seems highly irrational unless he can count on not having to face the consequences. Or is he betting everything on a pardon from the orange one? Then and again, I hear he is a risk taker.
I wonder if the wealthy in our country other than Elon Musk get it now.
I have made the point that Donnie is hazardous to your wealth. Part of this is due to a penchant for dictators to treat wealthy people’s money as their own. I am not talking about taxation, I am referring to out and out robbery. Usually robbery accompanied by some prison time. However we have not yet gotten to that stage of the s… show and look how bad it is already.
There is only one thing that can stop this now, impeachment. If not now when? It will only be more difficult as time goes on.
Not sure I understand all this (actually positive), but, isn’t China and Japan reducing their US bond holdings? If it continues, more to be concerned about?
The US doesn’t need to issue debt to fund itself. That’s a myth. It’s the other way around: The world needs US paper. And Treasurys aren’t “debt.” The whole discussion’s just a bunch of gibberish, but I gave up explaining that a long time ago. Suffice to say Stephanie Kelton’s right to a degree that even she doesn’t fully appreciate, and honestly I’m not even sure Warren Mosler appreciates it entirely either: MMT is “right” by definition. Even using the term “right” is a misnomer. MMT isn’t a “theory.” It’s just the way things are for hard currency-issuing sovereigns, and as the reserve currency issuer, the US is the pure manifestation — the paragon — of the hard currency-issuing sovereign.
But, again, I don’t even talk about that anymore, because it drives some readers to the brink of insanity, prompting them to make all sorts of spurious claims about MMT’s alleged connection to the post-pandemic inflation (Howard Marks said something like that a few months ago, which means he’s an idiot too, in my opinion and unfortunately). And it anyway doesn’t matter because if people think things are true, they are true, whether they actually are or not. So, in the context of the matrix of myths we all live, trade and invest in, yes, foreign demand (or a lack thereof) for US Treasurys matters quite a bit.
Walt, I read Kelton’s book a couple days after you wrote about it, Read it twice. I think what she says is that we could just increase the money supply without issuing debt, and that the only risk is inflation when money supply is increased beyond what the country is producing.
The section on how to remedy run away inflation, once you’ve gone and done it, is to accept the recession and put the unemployed on government projects, hopefully building roads and bridges, dams and power lines, etc. Would that work to reduce inflation? Kelton didn’t spend much ink on this part.
Guessing here, if Treasury didn’t pay interest on money, Congress could use taxes to pay for more education, health and welfare, and people would lose their bond investments in favor of investing in productive businesses.
If that’s right, it sounds pretty good, so is there a way to unravel the debt? Skipping opposition for the moment, what would happen to the banks and to foreign investors and central banks? Unrealistic I suppose, but who’s to say? Unreal things are happening daily.
This probably is a stupid question, but whatever, I grew up blue collar, and don’t remember how I stumbled on to your blog for professional investors, where I have no place to be. For example, I’m embarrassed to say I don’t understand why anyone would buy Treasurys beyond short term, given the volatility. ( I prefer individual BBBs and BB rated ETFs.)
Thanks H. Basically, I follow your work to learn, I’m not an econ guy, but want to learn. You probably just gave me 4 hours of research to semi understand your answer. At 80 I quit all the memory puzzles, not sure they help me stay relevant. I decided to learn new concepts, so, here I am. I find what I learn here fun, instructive, and at times alarming. Results? The more I learn the more I appreciate the puzzles LOL. Keep up the good work. Almost forgot, I learn a lot from contributor, thought synergy is very good here….
My uninformed impression is that Treasury’s coupon (notes, bonds) issuance is bounded by various factors (market demand, dealer capacity, liquidity needs, etc), but that as a practical matter Treasury’s bill issuance is nearly unbounded (the market will buy as much 1-3 month paper as the US cares to offer). Is that fair?
Scottie has already done something noteworthy. He signed the order giving Uncle Elon full access to the US Treasury payments system after the director there refused to do so.
Bessent lost all claim to be the adult in the room when he allowed the zillionaire and his six young goons to rummage through secure Treasury Dept. computers.