US government expected to issue $1T in short-term debt as borrowing costs rise

The US government is leaning harder than ever on short-term borrowing to fund a roughly $2 trillion annual budget deficit, with Treasury bill issuance expected to hit $1 trillion as Secretary Scott Bessent tries to keep a lid on long-term interest rates that have surged to levels not seen in nearly two decades.

The 10-year Treasury yield climbed past 5% in mid-September 2026, its highest point in 19 years. Bessent’s answer: flood the market with short-term bills instead.

The Treasury Twist

Bessent’s strategy has been nicknamed the “Treasury Twist,” and the Treasury is ramping up issuance of T-bills, which mature in a year or less, while simultaneously expanding buybacks of longer-dated 10- to 30-year securities. Buybacks of those longer maturities are set to exceed $4 billion starting September 9-10, 2026.

T-bills now make up nearly 22% of total US national debt, which recently surpassed $40 trillion. The Treasury Borrowing Advisory Committee, the group of market participants that advises the government on debt management, has long recommended keeping that share between 15% and 20%. The government has blown past the upper bound.

Average T-bill issuance has exceeded $500 billion per week in recent months. With roughly one-third of all outstanding public debt now maturing within a single year, the Treasury has to keep issuing new bills just to pay off the old ones, at whatever rate the market demands that week.

Interest payments cross the trillion-dollar line

Total interest payments on the national debt are projected to exceed $1 trillion in the current fiscal year. For context, that’s more than the US spends on defense.

The Treasury General Account holds a cash reserve of around $950 billion. That buffer gives Bessent some room to maneuver on timing, letting him choose when to come to market rather than being forced to issue at unfavorable moments.

Short-term borrowing costs in the repo market have also risen sharply as of mid-September 2026, meaning even the “cheap” end of the yield curve is getting more expensive.

Stablecoins enter the Treasury market

The GENIUS Act, enacted in July 2025, requires stablecoin issuers to back their tokens with 100% reserves held in T-bills with maturities of 93 days or less. That single regulatory mandate has turned companies like Circle and Tether into some of the most reliable buyers of short-term US government debt.

Analysts project that if the stablecoin market grows to $2 trillion by 2028, the GENIUS Act could generate between $800 billion and $1 trillion in additional demand for T-bills.

What to watch

The biggest risk to Bessent’s approach is a scenario where short-term rates spike unexpectedly. With one-third of the debt rolling over within 12 months, even a modest increase in T-bill yields would translate rapidly into higher interest costs across the entire portfolio.

If the crypto market hits a rough patch and stablecoin redemptions accelerate, the guaranteed bid for T-bills could shrink precisely when the government needs it most.

The 10-year yield above 5% suggests the bond market isn’t entirely convinced.

Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.