Citi: Bessent May 'Wield the Knife' on Long-Bond Issuance Next Month, 20-Year Treasury Issuance Could Be Scrapped Outright

Citi said in a research note that U.S. Treasury Secretary Scott Bessent is likely to reduce the auction sizes of long-term Treasuries, and may even scrap 20-year Treasury issuance outright. Jason Williams, Citi's head of U.S. rates strategy, said the bank's base case is for $3 billion cuts to both 20-year and 30-year auctions at each sale, with the gap filled by increased issuance of short-term Treasury bills. The adjustment is expected to be announced at the Treasury's next quarterly refunding announcement on Nov. 4. In a Friday report, the Citi strategist recommended clients position for 20-year Treasuries to outperform 10-year notes, citing expectations of "cuts, and possibly even the elimination, of 20-year issuance." The first signal of such a change could come from a questionnaire planned for dealers next Friday. Williams said that if the Treasury asks major financial institutions whether demand for long bonds is being "partly cannibalized" by issuance from high-quality hyperscaler cloud computing companies, the questionnaire could serve as a "bullish catalyst" for the trade. "We don't think this investment-grade supply has impacted the overall level of rates, though we do think pension funds may be allocating more to long-end investment-grade credit than usual," he wrote. The debate on Wall Street is intensifying over what steps Bessent will take to suppress Treasury yields that are near multi-decade highs. Earlier this week, BNP Paribas strategists said they were skeptical such measures could effectively lower the U.S. government's funding costs.