The U.S. Treasury Department maintains the issuance of medium and long-term government bonds unchanged, disappointing market expectations of lower long-term interest rates.

The US Department of the Treasury said on Wednesday that it is closely monitoring the increasing demand for the shortest-term Treasury securities (bills maturing in less than a year) in the market, which is coming from both the Federal Reserve and private investors. However, the Treasury did not signal a reduction in the issuance size of medium and long-term Treasury bonds in its latest quarterly refunding statement, and overall debt management policy remains stable. In the document known as the "quarterly refunding statement," the US Treasury Department expects to maintain the auction sizes for nominal Treasury securities, long-term bonds, and floating rate notes for at least several quarters in the future. This forward guidance of "no adjustments for at least several future quarters" has been used continuously for the past two years. The Treasury Department also stated that it will continue to evaluate whether there is a need to increase the issuance size of fixed-rate Treasury bonds and floating rate notes in the future, focusing on structural demand changes and the costs and risks associated with different issuance structures. It is worth noting that while the Treasury Department mentioned the possibility of increasing issuance in the long term, it is still "monitoring" the Federal Reserve's expansion of purchases of Treasury securities. The Federal Reserve announced in December last year that it would purchase $400 billion of Treasury bills maturing in under a year each month, with the plan continuing until April to ensure ample reserves in the banking system. At the same time, the Treasury Department also noted the growing demand for Treasury securities from the private sector. John Canavan, chief economist at Oxford Economics, described the information released by the Treasury Department this time as still "incremental and maintaining the status quo." The market's response to this statement was somewhat disappointing. Some traders had speculated that the Treasury Department might adopt a more aggressive debt management strategy to lower long-term borrowing costs, but the statement did not show a clear shift. After the statement was released, the yield on the 10-year US Treasury note rose to a daily high of 4.29% around 9:17 am New York time. Steven Zeng, a rate strategist at Deutsche Bank, pointed out that the market had high expectations before the refunding announcement, with some investors hoping for tougher debt management measures. However, the results did not meet expectations, leading to an increase in long-term yields and narrowing of swap spreads, reflecting disappointment. In recent years, the US Treasury Department has become increasingly reliant on short-term Treasury bill financing amid continued growth in federal spending. Cutting the issuance of long-term or 10-year Treasury bonds immediately would conflict with the Treasury Department's long-standing principle of "disciplined and predictable" issuance. Treasury Secretary Scott Besne previously emphasized this debt management commitment in a speech in November last year. The Treasury Department also announced that the total size of next week's refunding auctions will reach $125 billion, including the issuance of $58 billion in 3-year Treasury notes on February 10, $42 billion in 10-year Treasury notes on February 11, and $25 billion in 30-year Treasury bonds on February 12. This round of refunding is expected to raise approximately $34.8 billion in new funds for the Treasury Department. As for Treasury Inflation-Protected Securities (TIPS), the Treasury Department stated that it will maintain auction sizes unchanged. In a period prior to the announcement, primary dealers had differing views on TIPS policies, with some predicting no changes and others expecting at least one increase in auction sizes over the next three quarters. Regarding the recent arrangements for short-term Treasury bills, the Treasury Department expects to keep the auction sizes of benchmark Treasury bills at their current levels until at least mid-March. It will then gradually reduce supply in preparation for increased cash flow around the April 15 tax filing deadline. The Treasury Department anticipates that these adjustments could result in a net decrease of $250-300 billion in total Treasury bill supply by early May. Strategists at Morgan Stanley noted that the current large-scale purchases of Treasury securities by the Federal Reserve have somewhat reduced the risk of "oversupply" in the market. However, the Fed's plans after April remain unclear, especially with the uncertainty surrounding Kevin Warsh's nomination to succeed as Fed chair in May. Warsh has previously advocated for reducing the size of the Fed's balance sheet. With the US facing an annual deficit of nearly $2 trillion and significant maturing medium-term bonds in the coming years, most Wall Street institutions believe the Treasury Department will eventually have to increase the issuance size of interest-bearing Treasury bonds. At that time, it is widely expected that the Treasury Department will be more inclined to increase issuance of shorter or medium-term maturity bonds, rather than significantly increasing the supply of 30-year bonds. Globally, the trend of weakening demand for 30-year long-term bonds has led European and Japanese governments to reduce the issuance of such bonds, sparking discussions about whether the US may adopt a similar strategy. The Treasury Borrowing Advisory Committee (TBAC) also mentioned in its statement on Wednesday that some debt management institutions overseas have indeed shown a trend of "tilting towards shorter-term issuances." TBAC members also discussed the pace of future increases in auction sizes: whether to raise issuance sizes earlier and more gradually or to take a faster adjustment path after a widening financing gap. The committee believes that it may be reasonable to increase the issuance size of interest-bearing Treasury bonds starting in the new fiscal year beginning in October this year. Canavan added that Besne has clearly stated that lowering long-term yields is a priority goal, so as long as he remains Treasury Secretary, any future increase in issuance sizes later this year or next year may focus more on shorter-term bonds with maturities of five years or less.