TREASURIES-Yields dip as Bessent says no near-term plans to change debt sales

Updated in New York afternoon time

By Karen Brettell

NEW YORK, Feb 20 (Reuters) - U.S. Treasury yields edged lower on Thursday after comments from the top Treasury official eased concerns of any looming increase in the size of longer-dated debt auctions.

Treasury Secretary Scott Bessent said a near-term change is not planned given hurdles, including the Federal Reserve’s quantitative tightening program, Bloomberg News reported on Thursday.

“It further kicks the can down the road for a higher issuance, maybe the end of this year, beginning of 2026 at the earliest, but we already knew that from the last refunding announcement,” said Will Compernolle, macro strategist at FHN Financial in Chicago.

Traders had been expecting Bessent to issue more longer-dated debt after formerly criticizing the Treasury under his Democratic predecessor, Janet Yellen, for relying heavily on short-term debt issuance.

But at its latest refunding announcement, the first under Bessent, the Treasury said it expects to keep most of its debt issuance plans unchanged for at least the next few quarters.

Bessent’s comments followed the release on Wednesday of minutes from the latest Federal Reserve meeting that showed policymakers discussed slowing or pausing the Fed's quantitative tightening program.

The Fed has been letting bonds roll off its balance sheet without replacement since June 2022. Slowing or pausing the program may reduce the amount of debt the Treasury Department needs to offer.

Fed officials flagged the challenge of getting a clear read on market liquidity as the Treasury wrangles with the reinstatement of the U.S. debt ceiling on January 2, which affects how it can manage cash.

Some analysts say the Fed may now end the program earlier than previously expected.

"It may not make sense to pause QT, say, the March or May meetings, only to briefly restart and end asset roll-offs in September or October. Instead, we think the Fed is more likely to end QT early than pause or taper," Barclays analyst Joseph Abate said in a report on Thursday.

The Treasury saw solid demand for a $9 billion sale of 30-year Treasury inflation-protected securities on Thursday.

The debt sold at a high yield of 2.403%, which was the highest yield in a 30-year TIPS auction since the Treasury reintroduced the security in 2010, according to analysts at BMO Capital Markets. Demand was 2.48 times the amount on offer. USAUCTION57

Meanwhile, data on Thursday showed that the number of Americans filing new applications for unemployment benefits increased moderately last week, suggesting that the labor market remained on solid ground.

The yield on benchmark U.S. 10-year notes US10YT=RR was last down 3.4 basis points on the day at 4.501%.

The two-year note US2YT=RR yield fell 0.8 basis point to 4.266%.

The yield curve between two-year and 10-year notes US2US10=TWEB flattened by around three basis points to 23 basis points.

St. Louis Fed President Alberto Musalem on Thursday raised the twin risks of rising inflation expectations and difficult-to-address stagflation in remarks that highlighted the potentially difficult choices facing the U.S. central bank.

Chicago Fed President Austan Goolsbee, in separate remarks on Thursday, gave a tempered view on inflation risks, saying he does not expect the inflation reading the U.S. central bank uses to set its inflation target to be as "sobering" as the previously reported Consumer Price Index figures.

Traders are concerned that tariffs planned by President Donald Trump will add to already sticky inflation.

Market volatility over tariff announcements has fallen in recent weeks, however, as the tariff implementation has been delayed, raising hopes that they are a negotiating tool and may not be as bad as feared.

Trump said on Wednesday he would announce tariffs over the next month or sooner, adding lumber and forest products to previous plans to impose duties on imported cars, semiconductors and pharmaceuticals.

Developments in discussions for a Russia-Ukraine peace deal are also in focus.

Trump's envoy for the conflict in Ukraine met President Volodymyr Zelenskiy in Kyiv on Thursday, but there was no immediate word on whether their talks had helped smooth over an unprecedented wartime rift between the once firm allies.