• Gregory Faranello, head of U.S. rates trading and strategy, said “we don’t expect short-term surprises with the Department of Treasury’s announcement this week and, with outstanding marketable debt poised to grow by another $2 trillion in 2025, changes may come later in 2025. “As we learned in January of 2021, elections have consequences when stars align not just for spending, but the allocation and return on money deployed. Clearly, an aligned outcome with either party next week could put further pressure on rates and term premium,” Faranello wrote in an email to MarketWatch. “What’s at stake as supply continues to grow is the dissemination of that debt stock and at what price investors deem appropriate given economic conditions and Fed policy.”

Since May, the Treasury Department has guided market participants toward the idea that it won’t need to increase the size of its coupon issuances or auctions “for at least the next several quarters.”

But rising concerns about the U.S.’s $1.83 trillion deficit during the run-up to the Nov. 5 election are putting that guidance increasingly at risk.

Investors and traders are bracing for a potential sweep by either political party that could translate into an onslaught of supply, though the question remains exactly when. The concern boils down to whether investors in and outside of the U.S. will maintain a healthy appetite for U.S. government debt after the election, or if they will struggle to absorb further supply.

Treasury yields have soared since mid-September – with 2-year BX:TMUBMUSD02Y, 10-year BX:TMUBMUSD10Y and 30-year BX:TMUBMUSD30Y rates each jumping by more than 50 basis points – and they continued to rise on Monday. Part of the
reason for the bond-market selloff that’s led to rising yields is worry that the national deficit will keep growing no matter if former President Donald Trump, the Republican nominee, or Vice President Kamala Harris, the Democratic
nominee, takes the White House.

For now, strategists at Wall Street firms like JPMorgan are of the view that the Treasury Department ought to be well financed through the end of fiscal 2025.

On Monday, the Treasury released an updated fourth-quarter financing estimate of $546 billion, or $19 billion less than it had assumed in July, with further details to follow in two days. The department also held a $69 billion auction of 2-year notes and a $70 billion sale of 5-year BX:TMUBMUSD05Y notes, which produced soft results, according to BMO Capital Markets strategist Vail
Hartman.

Market participants held a range of views on the most important time frames to watch, with some focused on the months between the time of the final Nov. 5 election results and mid-2025, when the Treasury might adjust the guidance it
gave starting in May.

Also taking place within this period is the expected reinstatement of the U.S. debt ceiling in early January, adding further uncertainty to the Treasury’s next moves. If Congress fails to address the debt ceiling before then, the Treasury will need to resort to extraordinary measures to pay the government’s bills or risk a government default.

From November through mid-2025, market participants will be anticipating additional government spending and increased Treasury issuance no matter which candidate emerges victorious – resulting in a steeper Treasury curve and higher yields, according to Larry Milstein, senior managing director of government-debt trading at R.W. Pressprich & Co. in New York.

The reaction will likely come more swiftly if there is a sweep of the Nov. 5 election by either party, which should produce a selloff in long-dated Treasurys based on concerns about larger budget deficits and a potential resurgence in inflation, Milstein said via phone on Monday. If government remains divided, “a little gridlock will mean that we may not get a market reaction as quickly and may need to see deficit spending come in first, which I suspect will be before the end of next year.”

He added that the Treasury Department “has done as much as it can in the bill space, and is going to have to issue further out the curve.” It will probably be the middle of next year or possibly later when the Treasury alters its guidance. Though Milstein wouldn’t rule out the possibility of a bond-market shock similar to what was seen in England in 2022, he said “there is still demand for Treasurys domestically and abroad because of the status of the U.S. dollar and the depth and liquidity of the Treasury market. But we could certainly be in a position of indigestion in the market and could see a significant move higher in yields” at some point.

Others like Peter Azzinaro, a partner and senior portfolio manager at Agile Investment Management in Florida, are focused on a much shorter period that begins as soon as next Monday and which could act as a test of the bond market’s future appetite for big auctions.

Via phone, Azzinaro said he’s zeroing in on three large Treasury auctions over three days next week for a sense of how well investor demand will hold up. The Treasury is set to hold a $58 billion sale of 3-year notes BX:TMUBMUSD03Y on Nov. 4, followed by a $42 billion auction of 10-year notes on Nov. 5 and a $25 billion sale of 30-year bonds on Nov. 6. The 10-year auction takes place the same day as the U.S. election, while the 30-year sale occurs just one day before the Federal Reserve’s Nov. 7 policy decision.

In addition, the portfolio manager said he expects the Treasury will need to tweak its guidance much sooner than others think. In his mind, mid-2025 “is too far down the road,” and Azzinaro suspects the Treasury could make meaningful adjustments to its guidance during the middle to latter part of the first quarter “because there’s going to be a new president no matter what, and the department will get an understanding of the cadence around that president’s policies around that time.”

“I wouldn’t be surprised to see the 10-year Treasury yield up 25 to 35 basis points from where it is now,” at above 4.5%, he said. Still, the Treasury market “is incredibly deep and very difficult to shock. It’s the deepest, most liquid market in the world.”

At veteran-owned broker-dealer AmeriVet Securities in New York, Gregory Faranello, head of U.S. rates trading and strategy, said “we don’t expect short-term surprises with the Department of Treasury’s announcement this week and, with outstanding marketable debt poised to grow by another $2 trillion in 2025, changes may come later in 2025.

“As we learned in January of 2021, elections have consequences when stars align not just for spending, but the allocation and return on money deployed. Clearly, an aligned outcome with either party next week could put further pressure on rates and term premium,” Faranello wrote in an email to MarketWatch. “What’s at stake as supply continues to grow is the dissemination of that debt stock and at what price investors deem appropriate given economic conditions and Fed policy.”