The battered bond market starts 2025 facing some difficult issues about debt

As if 2024 wasn’t bad enough, fixed-income investors will face several challenges in the coming year, including an under-the-radar concern about short-term notes maturing.

Almost $3 trillion of US debt is expected to reach maturity in 2025, most of it of a short-term nature that the Treasury Department has issued in large amounts in recent years.

With the government expected to try to extend the duration of that debt when it comes time to repay it, it could provide another headache if the market is not prepared to absorb what is already expected to be a massive issuance of the Treasury since the United States funds an almost. $2 trillion budget deficit.

“If you assume we’re going to run trillion-dollar deficits beyond 2025, then eventually, cumulatively, it will overwhelm T-bill issuance,” Tom Tzitzouris, head of fixed income at Strategas Research Partners. he said Tuesday on CNBC”Squawk Box.”

Strategas estimates that there is $2 trillion in “excess” Treasury bonds in the $28.2 trillion Treasury market right now.

“Those should be gradually discovered and cleared to the five- to 10-year portion of the majority of the curve, and that’s probably a bigger concern for the market now than the deficit next year,” Tzitzouris said.

Normally, the Department of the Treasury likes to keep the issuance of bills at just over 20% of the total debt. But this part has grown more in recent years amid the continuum battles over the debt ceiling and the budget and the need for the Treasury to immediately raise money to keep the government running.

In 2024, Issue of the treasury totaled $26.7 trillion through November, an increase of 28.5% from 2023, according to the Securities Industry and Financial Markets Association.

Secretary of the Treasury Janet Yellen faced criticism earlier this year from congressional Republicans and economist Nouriel Roubini, who charged that the department is issuing so many bills in an effort to keep financing costs low and dampen the economy during an election year. Scott Bessent, President-elect Donald Trump’s pick for Treasury secretary, was also among the critics.

However, yields have risen since late September, just after the Federal Reserve took the unusual step lower its benchmark lending rate by percentage point.

With yields and prices moving in opposite directions, it made for a miserable year for the Treasury market. U iShares 20+ Year Treasury Bond ETF (TLT) lost more than 11% in 2024, compared to a gain of 23% for the S&P 500.

With traders now pricing in a shallower path of rate cuts, and investors left to deal with an influx of issuance, it could be another challenging year for fixed incomes.

“The deficit next year should actually decrease materially versus 2024,” Tzitzouris said. “So it’s scooping and tossing those bills that’s a bigger concern at this point in time.”