The Treasury’s Quiet Campaign to Pull Rates Lower

The Treasury’s Quiet Campaign to Pull Rates Lower

• The Treasury releases quarterly refunding details tomorrow.

• Expect it to remain focused on short-term borrowing.

• The plan should weigh on long-term yields.

The White House wants relief on borrowing costs, and the bond market wants a clearer roadmap. Tomorrow’s Quarterly Refunding Announcement could give both sides what they’ve been waiting for…

Since stepping into the job last year, Treasury Secretary Scott Bessent has been focused on one mission: pulling Treasury yields lower. He keeps hammering the point that cheaper government borrowing filters straight into the real economy — lighter mortgage payments, easier auto financing, and a smoother runway for business investment. The administration, he says, is prepared to use every lever it controls to make that happen.

Initially, Bessent expected the Federal Reserve to shoulder part of the load by trimming rates. But the administration’s tariff push injected uncertainty into the inflation outlook, leaving the Fed cautious until recently. So Bessent pivoted.

Bessent’s pushed the White House to manage long‑term financing conditions without waiting for monetary policy to catch up. That’s meant leaning on fiscal and regulatory tools — streamlining rules, stabilizing energy costs, and nudging supply‑side pressures lower — all with the goal of coaxing yields down. And it’s worked. After opening last year near 4.8%, the 10‑year has eased to roughly 4.2%....

But the clock is still ticking. Nearly half of the $28 trillion in marketable U.S. debt matures within the next three years. With an average coupon of just 3.3%, rolling that debt at today’s rates could add roughly $300 billion to the deficit, according to Wells Fargo. Without more help from the Fed, that refinancing wave becomes harder to manage.

This week gives Bessent another chance to shape the path forward. On Wednesday, Treasury releases its Quarterly Refunding Announcement. If they stick with the current playbook — emphasizing shorter‑dated issuance — it could pull demand toward the long end of the curve. Any resulting dip in yields would lift corporate margin expectations and add yet another tailwind to the S&P 500.

But don’t take my word for it, let’s look at what the data’s telling us…

Each quarter, the Treasury lays out how it plans to finance the government. The details include how much it needs to borrow, what maturities it will lean on, and how long elevated spending might persist. Those details give investors a clearer sense of the fiscal runway ahead.

Yesterday, Treasury trimmed its first‑quarter borrowing estimate to $574 billion, a touch below November’s projection. It also expects just $109 billion of borrowing in the second quarter thanks to a larger‑than‑expected starting cash balance. But the real signal comes tomorrow morning, when we learn how the maturity mix will shift.

When Bessent first stepped in, Wall Street assumed he’d extend duration. Traders built short positions in long‑dated Treasurys early in 2025, betting the Treasury would lock in funding at higher rates and push yields even higher. Instead, Bessent leaned into short‑term issuance, and long‑term yields softened.

With rates now stable, investors expect him to keep that strategy in place. The logic is straightforward: by relying on shorter maturities today, Treasury can keep long‑term borrowing costs contained and wait to extend duration once the Fed has delivered more meaningful rate cuts.

For institutional investors, that backdrop leans supportive for equities. Lower yields give companies room to refinance at cheaper levels, freeing up cash flow. Banks holding underwater Treasurys would see those assets recover, improving balance‑sheet capacity and expanding the supply of available credit. That combination strengthens the outlook for spending, hiring, and growth.

Meanwhile, money market funds have become a powerful force. Assets have surged nearly 7% over the past three months — outpacing the 5% pace in the prior refinancing window…

Now, over $7.7 trillion sits in money market funds, more than double pre‑pandemic levels. These funds are hungry for short‑term paper, with 2‑year notes yielding 3.5% and 3‑month bills at 3.7%. Last quarter, those rates were 3.6% and 3.9%, respectively. With Wall Street expecting two more Fed cuts by year‑end 2026, locking in today’s yields on short‑duration instruments looks increasingly attractive.

That demand gives Treasury room to issue more short‑term debt without lifting yields. And by holding back on long‑term supply, they can tighten the market for 10‑year notes, encouraging asset managers to bid up existing bonds and nudging long‑term yields lower.

Every basis point Bessent can trim from borrowing costs reduces future interest obligations. And if cheaper financing helps households and businesses regain momentum, the payoff compounds — stronger growth, healthier tax receipts, and no need for additional spending.

If tomorrow’s QRA confirms that Treasury is staying the course, it strengthens the case for easing 10‑year yields — and supports the steady grind higher in the S&P 500.

Five Stories Moving the Market:

Teradyne forecast first-quarter revenue and profit above Wall Street’s estimates, driven by multibillion-dollar investments by technology companies on data center expansion to enable AI capabilities – Reuters. (Why you should care – increasing AI demand is boosting the need for equipment to test for semiconductor quality and reliability)

Palantir Technologies forecast revenue for fiscal 2026 that significantly exceeded Wall Street expectations; the company said annual revenue will rise 61% to about $7.19 billion compared to the consensus estimate for $6.27 billion – Bloomberg. (Why you should care – the company said that the U.S. military’s use of its Maven product is accelerating; government contracts provide the bulk of the company’s revenue)

NXP Semiconductors forecast first-quarter revenue above Wall Street estimates, anticipating a robust automotive market and consistent industrial demand; the company guided for quarterly revenue of $3.1 billion and earnings of $2.97 compared to the expectation for $3.1 billion and $2.90 – Reuters. (Why you should care – despite the strength in the industrial and automotive segments, the firm’s communications business came up short)  

The U.S. and India reached a trade agreement cutting tariffs on Indian goods, deescalating tensions between the two countries; President Donald Trump said the U.S. will lower a 25% tariff on Indian goods to 18% after Prime Minister Narendra Modi agreed during a phone call to stop buying Russian oil – WSJ. (Why you should care – while India is the U.S.’s tenth largest trading partner, it is increasingly viewed as a potential outlet for reducing supply-chain reliance on China)

The U.S. Bureau of Labor Statistics will not release the January jobs report on Friday as scheduled due to the partial government shutdown; other reports planned for this week, including December’s Job Openings and Labor Turnover Survey as well as the Unemployment release, will also be rescheduled – Bloomberg. (Why you should care – the monetary policy outlook becomes increasingly clouded until the government funding issue is resolved)

Economic Calendar:

Earnings: AMD, AMGN, CB, CMG, EMR, ETN, GWW, MRK, PEP, PFE, PRU, PYPL

Reserve Bank of Australia Monetary Policy Announcement

Eurozone – French CPI (Preliminary) for January (2:45 a.m.)

ECB Bank Lending Survey (4 a.m.)

Fed’s Bowman (Board Member, Voter) Speaks (9:40 a.m.)

U.S. – JOLTS Job Openings for December (10 a.m.)

Treasury Auctions $90 Billion in 6-Week Bills (11:30 a.m.)

U.S. - American Petroleum Institute Crude Oil Inventory Data (4:30 p.m.)