US Treasury Boosts Short-Term Bond Issuance to Meet Growing Demand

Zhi Tong Financial APP has learned that the US Treasury Department has announced plans to auction off a record-breaking $1 trillion worth of short-term government securities, with a maturity period of four weeks. This move comes on the heels of a previous record-breaking six-week treasury bill auction held earlier this week, highlighting the Treasury's continued preference for short-term financing to meet the growing demand from the federal government.

According to the Treasury Department's schedule released yesterday, the issuance of four-week treasury bills will increase by $50 billion to $1 trillion, while eight-week and seventeen-week treasury bill issuances remain unchanged at $850 billion and $650 billion, respectively. In comparison, last month saw a significant increase in four-week and eight-week treasury bill issuances, with this month's increase being slightly smaller but still maintaining a high level of supply.

The Treasury Department is expanding its short-term bond issuance partly due to the continued strong demand for such securities. The current yield on treasury bills exceeds 4%, making them highly attractive to investors. According to data from Dow Jones, inflows into ETFs holding short-term government securities reached a record high of $167 billion in the second quarter this year, more than double last year's same period.

Additionally, the Federal Reserve Bank's Consultative Committee noted that the recent increase in stablecoin issuance is also a new source of demand. According to the Trump administration's "Cryptocurrency Act," issuers of stablecoins are required to back their digital tokens with government securities and other safe assets, indirectly driving up demand for treasury bills.

The Treasury Department has increased its short-term bond issuance not only to meet current financing needs but also to rebuild cash buffers depleted due to debt ceiling issues. The department announced on July 30 that it will continue to increase short-term government securities supply in the near term, with a possible expansion in October.

It is worth noting that Treasury Secretary Mnuchin has no intention of increasing long-term bond issuance in the near future. Last month, he stated that the current federal funds rate is too high for issuing long-term debt, making it unattractive to investors. Trump also indicated on July 30 that "I've instructed my team not to issue more than nine-month maturity debt."

Market interest in long-term government securities remains uncertain. Tomorrow's ten-year treasury bond auction will provide some clues, while yesterday's three-year bond auction reaction was relatively subdued. Analyst Jason Williams at Citigroup has pushed back his forecast for an increase in long-term bond issuance to November from May next year, while Morgan Stanley's Jay Barry has delayed his original forecast of February 2025 to May.

At the same time, gold as a safe-haven asset has seen strong performance this year, with its price rising by nearly 30% since January. Against the backdrop of trade tensions, war, and market uncertainty, gold prices reached a new high of $3,500 per ounce in April.

Bank of America expects that as concerns over US debt levels continue to rise, gold prices will still have room for growth. The bank predicts that gold prices may break through the $4,000 per ounce mark in the coming months. The US government's continued rollout of massive fiscal stimulus packages has led investors to question the dollar's reserve currency status.

Bank of America's report noted, "If fiscal deficits continue to rise and market volatility remains high, it may attract more funds into gold." The bank also highlighted that central banks around the world are gradually reducing their holdings of US dollars and Treasury securities, instead increasing their gold reserves. Data shows that current global central bank gold reserves now equal 18% of total US public debt, up from 13% ten years ago.

A recent survey by the World Gold Council also showed that most central banks intend to continue increasing their gold holdings over the next 12 months, reducing their dependence on dollar assets. Various signs suggest that in a world where government bond supply is surging and fiscal sustainability is being questioned, gold is becoming the new safe-haven for global funds.