Is the Treasury’s Issuance Strategy a Stealth Bailout?
After once criticising former Treasury Secretary Janet Yellen’s strategy of increasing the Treasury’s share of short-term debt issuance, Scott Bessent has decided to continue the same strategy.
It’s part of the Trump administration’s bid to keep long-term interest rates down. But by using fiscal tools to provide low-cost liquidity to financial markets, it’s a bailout by another name to pump up struggling markets without literally pumping cash into the system directly. Now the Fed has finally stopped twiddling its thumbs about lowering rates, laying out a rate-cutting cycle for the rest of the year as the economy sputters and inflation roars.
In the post-Yellen Treasury, what has emerged is not so much a policy shift as a policy echo, with all the risks that entails. The policy of increasing issuance of short‑term Treasury debt — bills maturing within a year — is meant to avoid putting upward pressure on long‑term yields and prevent mortgage rates and borrowing costs for consumers and corporations from spiking. It allowed flexibility in budget funding, especially in a post‑pandemic era with large deficits and inflation (which, according to Trump, doesn’t exist).
Criticising Yellen, Bessent warned that favoring bills over notes and longer‑term bonds undermined efforts to control inflation. But with Trump declaring victory against inflation, Bessent is apparently no longer concerned. The only problem is that inflation is far from finished. In fact, it’s only getting started.
Continuing all-time highs for gold tell the real story of inflation…the story that inaccurate CPI numbers and revised jobs reports only pretend to tell.
US Unemployment Rate, 1-Year
Source: U.S. Bureau of Labor Statistics, Unemployment Rate [UNRATE], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/UNRATE, September 17, 2025.
This quarter, the Treasury expected to raise a record $1 trillion via short‑term debt (bills with maturities up to one year), over $500 billion more than the previous quarter. However, the Treasury is maintaining its auctions of longer‑dated debt at similar sizes over the coming quarters rather than cutting them.
If short‑term interest rates rise, it exposes the government to rollover risk, where future borrowing becomes too expensive. By favoring short maturities, the Treasury hopes to suppress longer‑term rates and encourage broader credit conditions. In other words, Bessent is using bills as a shock absorber.
But now the Fed is lowering short-term rates, as Trump has begged them to.
The Treasury yield curve has classically inverted before recessions hit and it stayed inverted for an epic multi-year run from 2022 to 2024. There’s growing recognition that we’ve already entered a recession, and have been in one for a while — right on schedule. With a year or two before most yield curve inversions and the subsequent recessions, we’re easily within range. This time, a Stagflationary recession could become a full-blown currency crisis.
Time will tell if the Treasury reverses course as the Fed cuts rates, as Bessent has indicated that Fed tightening was one of the justifications for his continuation of Yellen’s Treasury policies. The more you rely on very short maturities, the more frequently you have to refinance, and in a rising rate environment that means you’re vulnerable to cost jumps. Now that the Fed is expected to cut, Bessent is breathing a sigh of relief. But as inflation flares and the Fed is forced into action, the cost of issuing short‐term debt could climb quickly.
This continuation of short‐term heavy issuance under Bessent avoids the shock to long‐term rates that might otherwise happen under tighter finances and high inflation. By leaning on short maturities, the Treasury can keep immediate borrowing costs comparatively low, defer long‐term rate risk, and reduce visible rate pressures that affect politics and markets.
Viewed more sympathetically, one could argue Bessent is doing what any realistic Treasury is forced to do in the current context: high inflation, political pressure, and debt ceilings all limit breathing room. Perhaps in his mind, the path to terming out debt remains a future goal, but one that must wait until inflation falls and markets stabilize. But unfortunately, stagflation is the New Normal.
After printing as much money as they did during Covid, you don’t have any politically or economically viable options to get out of it. You’ve dug yourself into such a hole that the only solution comes with untenable levels of pain and discontent on Main Street. That means that you become willing to do anything to keep the game of musical chairs going. Regardless of what Bessent does, neither he nor the Fed is capable of solving the underlying issues, and tinkering from central planners can only make a bad problem even worse.
