The U.S. Treasury’s plan to shift debt issuance into a higher mix of long-term bonds exposes their opinion of current interest rates — they’re too low.
This hints that their inflation expectations are likely higher than those implied by the bond market. Let’s not forget that they are able to influence inflation via their policy decisions as well, conveniently.
The Treasury hopes to extend the average maturity of U.S. debt to 72 months from the current 26-year low of 49 months. This is likely to drive up yields at the longer end of the rate curve as higher supply buts against existing demand, all else being equal.
Potential rising yields caused by this shift could be bad news for people currently holding longer term U.S. government bonds such as Bill Gross, or even longer-term corporate debt as well.
Bloomberg: The government may reach the average maturity of six years by doubling sales of 30-year bonds to $250 billion and raising 10-year notes by a third to $350 billion, according to FTN. Those maturities would need to account for 32 per cent of all auctions to achieve an average maturity of 6.5 years, up from 18 per cent currently, FTN estimates.
“There’s going to be a lot of Treasury supply,” said Stuart Spodek, co-head of U.S. bonds in New York at BlackRock, which manages $539.6 billion in debt. “The easy money has been made.”