Wall Street is urgently reassessing the future of US government debt management as Treasury Secretary Scott Bessent's more assertive approach disrupts the long-standing predictability of the bond market. With the recent announcement of a buyback program that Bessent dubbed a "Treasury twist," attention has quickly turned to the November 4 quarterly refunding schedule.

Strategists at major investment banks including Bank of America Corp and Deutsche Bank AG warn that the upcoming statement represents an unprecedented level of uncertainty for the massive $31 trillion Treasury market. Current consensus among Wall Street institutions suggests the Treasury may signal in November that future borrowing increases will be funded through short-term bills and shorter-dated notes, while simultaneously expanding buyback operations to alleviate pressure on long-term yields.

Some investment banks are even flagging that the more aggressive option of directly reducing long-dated bond issuance is gaining traction. With long-term Treasury yields hovering near multi-year highs, the Treasury's departure from its traditional "regular and predictable" issuance framework is injecting fresh volatility into markets, forcing investors to recalibrate risk exposure across their portfolios.

The November Issuance Plan Becomes a Market Wildcard

Bessent's recent moves have shattered the calm that once characterized US policy-making in this arena. Meghan Swiber, managing director of US rates strategy at Bank of America Corp, notes the bond market is entering "a whole new world" of US debt management. Although Bessent has ruled out changes to the regular auction schedule for now and indicated the Treasury will stick to its current timeline until the next issuance plan is revealed, market expectations have already shifted.

Ian Lyngen, head of US rates strategy at BMO Capital Markets, points out that Bessent's actions have effectively turned the November refunding statement into a massive unknown, emphasizing that the possibility of scaling back bond auction sizes can no longer be dismissed. Additionally, the Treasury made a subtle wording adjustment in its most recent issuance guidance, stating officials are evaluating potential "changes" in future coupon and floating-rate note sales rather than the previously used term "increases," which analysts interpret as providing more leeway for reducing long-dated bond issuance.

The Strategy of Expanding Buybacks and Shortening Duration

As a first step in the adjustment, the Treasury may focus on buyback operations. The strategist team led by Steven Zeng at Deutsche Bank AG believes the Treasury could expand long-end operation sizes above the initially suggested $4 billion minimum threshold. Officials might even keep operation sizes confidential until the day before execution, reducing the predictability of the buyback program and substantially raising the cost for investors attempting to short long-dated Treasuries.

However, expanded buyback operations alone cannot achieve a meaningful shift in the government's debt maturity profile. Unlike the Federal Reserve, the Treasury cannot create money out of thin air to finance its purchases, meaning buybacks must ultimately be funded through additional issuance, most likely short-term bills, or by utilizing cash held in the Treasury's account. Morgan Stanley notes the Treasury account could provide between $80 billion and $200 billion to fund buybacks.

Martin Tobias, rates strategist at Morgan Stanley, suggests the expanded buyback may serve merely as a transitional measure until the November issuance plan arrives. He believes the event that will ultimately trigger market volatility is the way the Treasury shortens its weighted average maturity. Tobias anticipates the Treasury will gradually increase sales of shorter-dated notes while keeping longer-dated bond sales stable, though the risk of directly cutting long-end bond auctions has risen over the past week.

Tail Risks and Controversy Surrounding Reduced Long-Dated Issuance

Some strategists are contemplating more radical reform proposals. Citigroup has pushed back its forecast for larger auctions to 2028 and raised the tail risk that the Treasury may eventually eliminate the 20-year bond, a maturity that was reintroduced in 2020 by Steven Mnuchin, Treasury Secretary during the first Trump administration. Despite its shorter tenor, the 20-year bond currently trades at yields similar to the 30-year bond, an anomaly given the upward-sloping US yield curve.

Jason Williams, head of US rates strategy at Citigroup, says given the 20-year bond's poor trading performance relative to the 10-year and 30-year maturities, the Treasury is likely to reduce its auction size, and the 20-year bond could benefit most from future actions. However, directly cutting long-dated issuance faces practical challenges. The Treasury stopped selling 30-year bonds in 2001, but the fiscal backdrop was entirely different then, with budget surpluses reducing government financing needs. In the current high-issuance environment, eliminating any maturity would force other tenors to absorb those borrowings.

Kevin Flanagan, head of investment strategy at WisdomTree, warns that reducing issuance at the long end of the curve while making up for it elsewhere appears mathematically very difficult. He cautions that if the Treasury pursues this path, the market will view it as manipulation, which could ultimately backfire.