The Treasury Department announced this week that it expects to borrow more than anticipated in the current quarter as incoming cash flow has been weaker than initially projected.
The $189 billion now estimated for the April-June quarter is $79 billion more than what Treasury saw in February. And after adjusting for a larger-than-expected cash balance at the start of the quarter, the new borrowing guidance is actually $122 billion higher.
With tax-filing deadlines coming in April, the spring quarter typically requires less borrowing than other times of the year. For comparison, the Treasury Department borrowed $577 billion during the January-March quarter and expects to borrow $671 billion July–September quarter.
But this filing season, Americans benefited from new tax breaks enacted in last year’s One Big Beautiful Bill Act. In addition, the Supreme Court struck down President Donald Trump’s global tariffs earlier this year, and importers have started getting refunds. As much as $166 billion could be returned.
For Mark Malek, chief investment officer at Siebert Financial, the borrowing update is the latest example of the immense supply of fresh debt that the Treasury Department is issuing.
In a recent blog post titled “The bond market is shouting,” he pointed out that the Federal Reserve has cut the benchmark rate by 175 basis points since mid-2024, but the 10-year Treasury yield has only dipped by about 35 basis points.
“That kind of disconnect is not normal,” Malek warned. “In fact, analysts who have tracked the relationship between Fed policy and long-term yields going back to 1990 describe it as unprecedented. The bond market is not broken. It is sending a message. And if you know how to listen, it is shouting.”
The shouting is coming from “bond vigilantes,” a term coined by Wall Street veteran Ed Yardeni in the 1980s, referring to traders who protested huge deficits by selling off bonds to push yields higher.
But unlike prior episodes when bond vigilantes made a dramatic splash in financial markets, today’s moves are “a slow, structural pressure campaign” driven by three forces, according to Malek.
The first is the enormous supply of bonds being issued as annual budget deficits run at roughly $2 trillion per year with interest costs alone at $1 trillion. The recent explosion of debt even prompted the IMF to warn the “safety premium” on Treasury bonds is disappearing.
“When you flood the market with supply and simultaneously chip away at the credit quality perception, bond buyers require higher yields to compensate,” Malek wrote.
Second, the term premium has widened from near zero, when it was suppressed by the Fed’s bond purchases, and has recently been “reasserting itself with a vengeance,” he said.
The third factor is the changing makeup of the Treasury bond market. Steadfast buyers like central banks in China and Japan have pulled back, while less patient investors like hedge funds have stepped in.
A wildcard is the tech sector, which has seen so-called AI hyperscalers issue a tsunami of corporate debt that’s competing against Treasury bonds for investors’ dollars. Meanwhile, incoming Fed Chair Kevin Warsh is expected to shrink the central bank’s balance, adding more upward pressure on yields.
Ultimately, the bond market is sending a message about the economy, and it isn’t swayed by trendy narratives, Malek said.
“It can only price what it sees,” he concluded. “And what it sees right now—$39 trillion in debt, a trillion dollars a year in interest costs, six Fed cuts that barely moved the long end, a foreign buyer base in quiet retreat, and a new Fed chair likely to pull back the one remaining artificial support—is a future where capital is scarce and patience is rewarded, but complacency is not.”
