(Reuters) – U.S. Treasury Secretary Janet Yellen said at a hearing on Tuesday that there are no current plans to lengthen the maturity of Treasury debt issued.
The average maturity of the Treasury’s public debt portfolio dropped significantly last year as the Trump administration relied extensively on short-term Treasury bill issuance to finance emergency measures to support the economy. The weighted average maturity (WAM) dropped from around 70 months just before the pandemic to less that 65 months – or just over five years – at the end of 2020 according to a recent Treasury presentation https://home.treasury.gov/system/files/221/CombinedChargesforArchivesQ42020.pdf.
In response to a question from Representative Andy Barr, who asked whether the Federal Reserve or Treasury intended “to lengthen the maturity of government debt before interest rates rise,” Yellen said: “Treasury has been looking at this question and has no current plans to do that.”
While Yellen, who was speaking at the House of Representatives Committee on Financial Services, signaled Treasury was not about to embark on a deliberate effort to lengthen the portfolio, some investors still expect that to happen naturally, as the heavy reliance on bills for emergency spending diminishes and the Treasury draws down its cash balance.
T-bills’ share of total outstanding debt shot from around 15% to over 25% at one point last year and ended 2020 at 23.7%, still roughly 1 percentage point above the historic average.
“The current issuance profile is actually leading to the average maturity of the debt gradually increasing,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities, who said the introduction last year of a 20-year bond will also help drive the average maturity up.
“The Treasury is already extending the WAM of the debt gradually over time under the current issuance profile.”
Investors have wondered if the Fed might skew its $80 billion a month in Treasury purchases to lengthen the maturity of its holdings, which could help cap a recent rise in long-dated Treasury yields. Powell and other Fed officials have to now resisted the maneuver, conducted periodically in the past under the name Operation Twist, arguing that such a move is not needed at this time.
Treasury yields have risen in recent weeks, with the 10-year yield hitting a 14-month high. Though the rise in yields has led to a selloff in some tech stocks, the S&P 500 index is nevertheless not far from all-time highs.
Asked about current asset valuations, Powell said that “some asset prices are a bit high” but noted that funding risk is relatively modest and banks are well-capitalized. Yellen characterized asset prices as “elevated” by historical standards.
(Reporting by Kate Duguid; editing by Megan Davies and Marguerita Choy)
