The US Treasury Department building in Washington, D.C. on August 15, 2023.
Nathan Howard | Bloomberg | Getty Images
As if the 2024 bond downturn wasn't bad enough, fixed-income investors face multiple challenges next year, including a little-known concern about the maturity of short-term bonds.
Nearly $3 trillion in U.S. debt is expected to mature in 2025, much of it short-term in nature that the Treasury Department has been issuing in large quantities over the past few years.
With the government expected to try to lengthen this debt when it comes time to extend it, it could cause another headache if the market is not prepared to absorb what is already expected to be a massive issuance of Treasuries as the US finances its nearly $2 trillion budget deficit.
“If you assume we're going to have deficits of more than $1 trillion after 2025, that will eventually, cumulatively, overwhelm the issuance of Treasury bills,” said Tom Tzitzouris, head of fixed income at Strategas Research Partners. He said Tuesday on CNBC“Squawk box.”
Strategas estimates there is $2 trillion of “excess” Treasuries in the $28.2 trillion Treasury market now.
“Those will have to be phased out and thrown into the five- to 10-year part of the majority curve, and that's probably a bigger concern for the market right now than next year's deficit,” Tzitzouris said.
Typically, the Treasury prefers to keep billing at just over 20% of total debt. But this share has risen in recent years and is continuing Battles over the debt ceiling and budget The Treasury Department needs to raise cash immediately to keep the government running.
In 2024, Treasury issue It totaled $26.7 trillion as of November, an increase of 28.5% from 2023, according to the Securities Industry and Financial Markets Association.
Minister of the Treasury Janet Yellen It faced criticism earlier this year from Republicans in Congress and economist Nouriel Roubini, who accused the department of issuing too many bills in an attempt to keep near-term financing costs low and support the economy during an election year. Scott Bessent, President-elect Donald Trump's pick for Treasury Secretary, He was also among the critics.
However, yields have been rising since late September, after the Federal Reserve took an unusual step Reducing the benchmark interest rate on borrowing By half a percentage point.
With yields and prices moving in opposite directions, it has made this a miserable year for the Treasury market. the iShares 20+ Treasury ETF (TLT) It lost more than 11% in 2024, compared to a gain of 23% for Standard & Poor's 500.
With traders now pricing in a shallower path to rate cuts, and investors left to deal with the influx of issuances, this could be another difficult year for fixed income.
“Next year’s deficit should decrease significantly compared to 2024,” Tzitzouris said. “So collecting those bills and throwing them away is a bigger concern at this time.”
