The chains of habit are too weak to be felt until they are too strong to be broken. – Samuel Johnson
The chains of habit are too weak to be felt until they are too strong to be broken.
Nearly 70% of U.S. fixed-income issuance over the past year has come from one source: Treasury bills. It is a subtle recalibration of the government’s balance sheet – a shift toward shorter-term debt as deficits deepen. The world’s largest borrower is increasingly financing long-term fiscal obligations with instruments that mature in a matter of months.
The attraction is obvious. T-bills are easy to sell, cheap to issue and eagerly absorbed by money market funds. They are the most liquid corner of global finance and the least visible to political scrutiny. In the U.S. Treasury’s words, T-bills serve as a “shock absorber” for short-term funding needs – the cleanest way to borrow at the “least cost over time.”
This evolution began in response to higher interest rates and widening deficits. In 2023 and 2024, the Treasury leaned on the front end to rebuild cash balances during debt-ceiling disruptions and avoid deficit-induced stress in the long bond market. That pattern has hardened into structure: The Treasury now plans to hold coupon sizes steady for several quarters while expanding T-bill issuance. What once looked like flexibility has become policy. Treasury quarterly refunding statements, once overlooked, are now market-moving events as concerns about the market’s ability to absorb greater long-end supply come into focus.
Behind the convenience lies a duration problem. By replacing long-term funding with short-term rollovers, the U.S. is effectively refinancing a large portion of its debt every few months.
This is fiscal engineering under fiscal dominance, where the Treasury’s strategy adapts more to market capacity and investor appetite than to long-term policy design. T-bills have become the path of least resistance – the funding tool that lets borrowing continue without immediate confrontation with the cost of extending maturities.
The logic is not uniquely American. Japan’s Ministry of Finance recently announced it would reduce issuance of 20-, 30- and 40-year bonds after demand for super-long maturities collapsed. The Bank of Japan has warned that higher yields could “imperil the nation’s finances,” even as it slows its balance-sheet reduction to preserve liquidity. Together, the world’s two largest sovereign borrowers have shifted from setting conditions to accommodating them.
As trillions in T-bills roll out every few weeks, interest expense now moves almost one-for-one with the Federal Reserve’s policy rate. Each rate decision becomes a fiscal event. Net interest outlays are already among the fastest-growing items in the federal budget. The Treasury’s balance sheet has become more sensitive to changes in short-term rates.
This trade-off reflects the short-term temptation at the heart of fiscal engineering. Issuing short debt reduces cost today but magnifies risk tomorrow. The Treasury is managing liquidity while surrendering longevity. The more it leans on T-bills, the more its funding strategy mirrors investor behavior – optimizing for cash flow over durability.
The danger of that logic compounds over time. The longer this structure persists, the harder it becomes to extend maturities without lifting yields. Market demand, fiscal constraints and policy optics all converge to favor the front end. What begins as risk management ends as regime.
Between the Lines is a weekly blog by DoubleLine Portfolio Managers Sam Garza, Joseph Mezyk and Quant Analysts Fei He, CFA and Sunyu Wang that breaks down topical macro and market issues. For questions or suggestions please e-mail us at betweenthelines@doubleline.com. The views and opinions expressed herein are those of the authors and do not necessarily reflect the views of DoubleLine Capital LP, its affiliates or employees.
