The US President Trump and Treasury Secretary Bernanke are in unison, claiming to wait for interest rates to fall before considering issuing long-term government bonds.

According to a recent report by the Wall Street Journal, the Trump administration is moving away from the "routine and predictable" debt issuance principles that the Treasury has followed for decades, adopting instead a more speculative "timing" strategy.

"What I will do is issue very short-term bonds, and then switch to long-term when this guy (Powell) is gone, and interest rates drop significantly," Trump previously publicly stated, indicating his preference for issuing only short-term bonds with maturities of six to nine months before the departure of Federal Reserve Chair Powell and a significant drop in interest rates.

This time, even Treasury Secretary Bernanke, who calls himself "the chief bond salesman of America," also stepped forward to say that he would wait for interest rates to fall before considering issuing long-term government bonds. He had previously hinted that increasing the issuance of long-term bonds was necessary before taking office in the Trump administration.

Analysts believe that for decades, the US Treasury's debt management has been known for being "boring," which is a deliberate design. Its official stance has always emphasized that its goal is not to predict the market to obtain the best interest rates, as it fears that such attempts could trigger uncertainty and speculation, ultimately pushing up borrowing costs. However, the new statements from the Trump administration are breaking this norm. Publicly discussing "timing issues" may increase the risk of the government's lending decisions. If the market perceives that the government's issuance plans are no longer predictable, it may demand a higher risk premium, which could ironically raise interest rates.

This potential strategic shift comes at a time when the US government is facing an annual fiscal deficit of about $2 trillion. The market is closely watching the release of the US quarterly refinancing statement this Wednesday for clues on whether the Trump administration will formally convert its public statements into policy.

Term Selection Amid Massive Deficits

How to borrow has become an increasingly important issue because the scale of the US government's borrowing is unprecedented.

The current annual federal budget deficit in the United States is about $2 trillion, and the total national debt is close to $30 trillion. When filling the funding gap, the government needs to make trade-offs between different maturity debts. Short-term borrowing is usually cheaper but makes financing costs more volatile. Once inflation rebounds and the Fed is forced to raise interest rates, there is a risk of a sharp increase in costs.

In contrast, long-term borrowing is more predictable in cost, but typically requires paying a higher initial interest rate. The current preference of the Trump administration for short-term debt is a choice made in this context.

Official Stance of the US Treasury Remains Cautious

Although the president and the treasury secretary frequently send out "timing" signals, the official stance of the Treasury remains cautious.

Michael Faulkender, the Deputy Secretary of the US Treasury, said in a written statement that the Treasury still commits to issuing bonds in a "routine and predictable" manner and refers to the opinions of market participants. He said:

It is dishonest to imply that this administration has deviated from the long-standing debt management practices, given that the auction sizes and market guidance of the Treasury have not changed since the previous administration.

Although the official side tries to downplay the change in strategy, most analysts expect that the Treasury will maintain the existing pace of medium- and long-term government bond issuance for the next few quarters in the upcoming quarterly refinancing statement. Analysts believe that to meet the government's growing financing needs, this plan may soon need to be supplemented by issuing more short-term Treasury bills, which in practice aligns with Trump's preferred short-term strategy.

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