The United States is bracing for a major wave of debt issuance. If the debt ceiling is lifted, the U.S. Treasury could issue up to $1 trillion in new government bonds during the second half of 2025. Markets are already on alert, and traders on Wall Street are closely watching the potential impact.

🔹 Most of this issuance will be in short-term instruments – especially Treasury bills maturing in one year or less. While these can be issued quickly, they also challenge market demand due to the sheer volume.

Trump's Fiscal Plan Driving the Deficit Higher

President Donald Trump is pushing a major tax and spending package through Congress. According to the Congressional Budget Office, the plan would increase the federal deficit by $2.8 trillion over the next decade. While the bill may support the economy in the short term, it will also require additional government borrowing – adding further pressure on debt issuance.

Treasury Secretary Scott Bessent said the Senate could vote on the bill as early as Friday, with the House expected to follow. The key event hanging over the debate is the so-called "X-date" – the point when the U.S. government runs out of borrowing capacity under the current ceiling. That date is projected between July and August.

Massive Bond Supply Could Shake Markets – $1 Trillion Incoming

According to Mark Cabana of Bank of America, a "sharp acceleration" in bond supply is imminent. He predicts that as much as $700 billion could flood markets just in August and September. A similar forecast came from Gennady Goldberg of TD Securities.

Repo rates could initially dip due to oversupply. However, if demand doesn't keep pace, rates could spike rapidly – especially in the 2-to-7-year maturity range.

Longer-term bonds (10–30 years) are unlikely to see major changes. In fact, Goldberg expects a possible reduction in long-end issuance, while the Treasury focuses on short and mid-term bonds like 2-, 3-, 5-, and 7-year notes.

Cash Is Available – But Will It Flow Into Treasuries?

Money market funds, which now hold a record $7.4 trillion in assets, could theoretically absorb the new debt. But many of these funds have already started shifting away from government debt in favor of private repo trades that offer higher returns.

So, while liquidity exists, it may not go into Treasuries. This mismatch in supply and demand could pose a major risk – just as the government prepares its largest bond issuance in years.

What’s Next?

It all comes down to timing. If Congress lifts the debt ceiling in time and demand holds up, the market might absorb the shock. If not, bond traders are in for a rough ride.




#WallStreet , #bond #market , #TRUMP , #economy

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