Bessent’s ‘Treasury Twist’ Has Wall Street War-Gaming a Shift in Borrowing Strategy

Bessent’s ‘Treasury Twist’ Has Wall Street War-Gaming a Shift in Borrowing Strategy

Greg Ritchie, Michael MacKenzie and Yash Roy

Wed, August 26, 2026 at 9:52 PM GMT+3 4 min read

(Bloomberg) -- US Treasury Secretary Scott Bessent's more activist style of managing the nation's debt has Wall Street war-gaming a potentially bigger shift in the government's borrowing strategy over the coming months.

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One radical option would be to cut sales of long-dated bonds, according to Deutsche Bank AG, Morgan Stanley and Citigroup Inc. More likely, the Treasury could signal at its Nov. 4 quarterly refunding that future increases in borrowing will be done via bills and shorter-maturity notes, while further expanding buybacks to ease pressure on long-term yields.

The rethink shows how Bessent's actions are bringing uncertainty to a policy long known for being "regular and predictable." Bank of America strategists, led by Meghan Swiber, said it signals the start of "a new regime" as officials take a more "activist" role in shaping the market.

Bessent's moves have "effectively made the November refunding announcement more of a wildcard than otherwise would have been the case," said Ian Lyngen, head of US rates strategy at BMO Capital Markets. "Reductions to bond auction sizes can no longer be ruled out."

For now, Bessent has ruled out changes to the regular auction program, saying that Treasury will stick with its current schedule until at least the next refunding. But a revamped buyback program announced last week, which he dubbed a "Treasury twist," raised the stakes around the November announcement for the $31 trillion Treasury market.

The expanded buybacks are unlikely to deliver a meaningful transformation of the government's debt maturity on their own. Unlike the Federal Reserve, Treasury cannot create money to finance its purchases, meaning buybacks must ultimately be funded with additional issuance, most likely bills, or with cash from the Treasury General Account.

"Expanded buybacks themselves are likely just a bridge until they get to November refunding," said Martin Tobias, a rates strategist at Morgan Stanley. "The market-moving event ultimately will be the manner with which Treasury goes about shortening the weighted-average maturity."

Tobias expects the Treasury will gradually increase sales of shorter-dated notes, while keeping longer-maturity sales steady. However, the risk of outright cuts to long-end auctions has gone up over the last week, he said.

Treasury did make a subtle shift to its guidance at its latest refunding, saying officials were evaluating potential future "changes" in coupon and floating-rate note sales, rather than studying potential "increases," as in previous guidance. That gives the department more leeway to reduce long-end issuance, analysts said.

A representative for the Treasury Department didn't reply to a message seeking comment.

Tail Risk

Some strategists are considering a more radical overhaul. Citigroup pushed back its forecast for larger auctions until 2028 and raised the tail risk that Treasury could ultimately eliminate the 20-year bond, which was reintroduced in 2020 by President Donald Trump's first Treasury Secretary Steven Mnuchin.

The maturity currently trades at yields similar to 30-year debt, despite its shorter tenor, counterintuitive given the US's upward-sloping yield curve.

"The 20-year may benefit the most from future actions as Treasury is likely to reduce the size of its auctions, given how poor it trades relative to 10s and 30s," said Jason Williams, head of US rates strategy at Citi, which is recommending clients go long the 20-year bond.

Treasury did halt sales of 30-year debt in 2001, but the fiscal backdrop was radically different, with budget surpluses reducing the government's financing needs. Any move to eliminate a maturity today would force other tenors to absorb the borrowing at a time of elevated issuance.

"It seems to me mathematically very difficult to cut issuance at the longer end of the curve and make it up elsewhere," said Kevin Flanagan, head of investment strategy at WisdomTree. "If they go down that path then the market will see that as manipulation and it can backfire."

For now, Treasury watchers have to wait until November. With long-term yields near multiyear highs, refunding decisions that have produced little change in recent years could become a much bigger source of market volatility.

"The departure from the Treasury's long-standing practice of being 'regular and predictable' has introduced a new set of risks and uncertainties," BMO's Lyngen said. It is "the clearest signal yet that the Treasury Secretary is embracing a more activist approach to debt management."

--With assistance from Ye Xie.

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