BNP Warns Eliminating US 20-Year Bond Could Push Borrowing Costs Higher

US Treasury Secretary Scott Bessent faces pressure to stop selling the 20-year government bond, but banking firm BNP Paribas warns that cutting the debt option could backfire and drive borrowing costs up instead of down.

Market Risks

Bond traders have discussed whether Bessent might shift government borrowing away from long-term bonds, where yields are near multi-decade highs, and toward short-term debt. Scrapbing the 20-year bond is seen as a radical step because that maturity currently demands a higher yield than nearby tenors. Strategists led by Guneet Dhingra at BNP Paribas state that such a change will not work, arguing it could signal panic, exhaust the Treasury's toolkit, and encourage bond vigilantes.

Refunding Uncertainty

This debate builds uncertainty ahead of the Treasury's quarterly refunding statement on November 4, where officials will share their borrowing plans. The 20-year maturity has struggled since its return in 2020, and the US currently pays more to borrow at that length than for 30-year debt. BNP Paribas strategists maintain a recommendation to short 30-year Treasuries, aiming for a yield target of 5.8% from 5.64%.

Context

Government bonds are debt instruments issued to finance public spending, and their yields fluctuate based on investor demand, inflation expectations, and central bank interest rates. When borrowing costs rise, it becomes more expensive for the government to service its debt obligations.