Yellen says bill issuance not aimed at ‘sugar high’

By David Lawder

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen on Tuesday rejected suggestions by Republican senators that the Treasury is deliberately increasing issuance of short-term Treasury bills at higher interest rates to try to stimulate the economy ahead of the November presidential election.

Yellen told a U.S. Senate subcommittee hearing that Treasury’s mix of debt issuance, despite a higher share of short-term bills since the COVID-19 pandemic, is in line with historical norms and with the advice of market participants in the Treasury Borrowing Advisory Committee.

“First of all, let me say that we never time the market. A tenet of Treasury debt management is that issuance should be regular and predictable, and that’s appropriate over time,” Yellen said.

Republican Senator John Kennedy and Bill Hagerty criticized Yellen for issuing debt at higher interest rates amid an inverted yield curve. Currently the yield on the benchmark 10-year Treasury note is 4.33%, compared to 5.4% on the three-month Treasury bill.

Kennedy accused Yellen of deliberately boosting short-term debt to spur growth during an election year, suggesting this was putting downward pressure on long-term rates.

“You’re paying 5 percent to borrow money, when you could pay 4 percent to borrow money,” Kennedy said. “You’re working at cross purposes with (Federal Reserve Chair) Jay Powell. And the reason you’re doing this is to try to give the economy a sugar high five months before the election,” he said.

Yellen replied: “There’s nothing about issuing short term debt that creates a sugar high for the economy.”

She told the senator that market participants anticipate that short term rates will fall to substantially under 4.5%, so locking in debt for 10 years at current rates would likely result in higher long-term borrowing costs than the current path.

“We have a policy that we want to hold the issuance of short term bills in line with the recommendations of the Treasury Borrowing Advisory Committee,” Yellen said, referring to the group of primary dealers that advises Treasury on debt issuance plans.

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