After Bashing Janet Yellen’s Approach to Debt Issuance, Bessent Keeps It For Now

There’s a big difference between playing armchair quarterback and suiting up for a real game.

No, we’re not talking about this Sunday (Go Birds), we’re talking about the US Federal Treasury. A year ago, newly confirmed Treasury Secretary Scott Bessent was critical of his predecessor Janet Yellen’s debt issuance strategy. On Wednesday, he stuck with it. More importantly, the somewhat boring technical decision has some very important economic implications.

Playing the Short Game 

Towards the end of 2023, the Treasury under Yellen adopted a strategy to fund the government with the sale of more short-term treasuries. Many on Wall Street credited this with helping to calm markets by providing a safe haven investment amid persistent inflation.

The short-term part is important here: The chance to buy three-year notes meant investors were not tied to bonds with maturation dates too far down the road. Investors care about this because of the ballooning federal budget deficit, which topped $1.8 trillion in the 2024 fiscal year and saw interest payments on the debt cross the $1 trillion mark for the first time.

Generally, the bigger the government shortfall, the more treasuries a government sells to obtain financing. Bessent, however, argued excessive short-term issuance amounted to a risky gamble too narrowly focused on propping up the economy in the short term. On Wednesday, at least, the Treasury stuck with the old strategy he doubted:

• The Treasury kept its guidance suggesting the sale of long-term debt will remain unchanged through much of 2025. When $125 billion is auctioned next week, it will comprise $58 billion of 3-year notes, $42 billion of 10-year notes, and $25 billion of 30-year notes.
• That’s the same amount of debt sold in the past several quarters by the Treasury under Yellen’s leadership. While perhaps not aligning with Bessent’s past views, it does stick to the Treasury’s longstanding pledge to remain “regular and predictable” and suggests the new secretary will, unlike his boss in the Oval Office, give notice of any major policy changes in advance, and not on social media. 

Looking Long Term: If Bessent does one day ramp up the issuance of longer-term debt, the primary concern will be added pressure on already rising Treasury yields — which benchmark borrowing costs across the economy and, as of January 24, had already risen nearly a percentage point since September. Any related increase in borrowing costs, of course, can lower stock valuations because the cost of capital goes up. Just like real quarterbacking, the Treasury has a vast and complicated playbook.