Exactly 25 years ago this month, the U.S. Treasury's decision to stop issuing 30-year bonds stunned investors. Now, Wall Street is abuzz with talk about whether 20-year bonds might meet the same fate.
Deutsche Bank strategist George Saravelos said recently after visiting clients in New York that "there are rumors that 20-year bond issuance could be suspended." A counterpart at Citigroup went further, advising clients to position for 20-year bonds to outperform 10-year notes and to prepare for "reduced or eliminated 20-year issuance." Citigroup expects Bessent may cut U.S. long-bond auctions as soon as next month, or even cancel 20-year issuance altogether. The logic mirrors the 2001 cancellation of 30-year bond issuance, and the rationale behind this push is likewise to lower the U.S. Treasury's borrowing costs.
Even Steven Mnuchin, the then-Treasury secretary who revived the 20-year bond in 2020, told Bloomberg in 2024 that the duration should be eliminated, saying "it's just too costly for taxpayers." Indeed, since its resurrection in 2020, the 20-year Treasury has been an outlier in the market: its yield is higher than both the adjacent 10-year and 30-year bonds. Interest expenses have surged as Treasury yields soared to their highest levels in decades, making the rising financing costs facing American taxpayers increasingly urgent.
All eyes are on the Treasury's quarterly bond issuance plan due to be released on November 4. The key question in the so-called quarterly refunding announcement is whether Treasury Secretary Scott Bessent is willing to cancel 20-year issuance without sufficient groundwork. The 2001 shock triggered strong criticism of Treasury officials at the time, and in the end the 30-year bond was restored.
For some, it's a simple solution and an extension of the extraordinary measures Bessent has already taken to lower borrowing costs. "If you want to do something, forget everything else and just kill the 20-year," said Padhraic Garvey, head of Americas research at ING Groep NV. "Nobody likes the 20-year, but our baseline view is that he'll maintain the status quo."
If the Treasury is considering a policy shift, initial signs could emerge on Friday. That's when the Treasury will send its customary survey to primary dealers, which may include some specially targeted topics. There is precedent for this. The U.S. Treasury has not yet responded to requests for comment.
Jason Williams, head of U.S. rates strategy at Citigroup, said the baseline expectation is that both 20-year and 30-year bond auctions will be cut by $3 billion each time, with the funds raised through increased Treasury bill issuance. However, canceling 20-year bonds may still not be a perfect solution for the Treasury. BNP Paribas warned last week that the move "could be seen as panic and would also show that the Treasury's policy tools have been exhausted, emboldening bond vigilantes." "Unintended consequences" could include reduced market liquidity, the bank's strategist team led by Guneet Dhingra wrote in a research note.
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