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

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 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 its 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.

Compernolle noted, however, that the impact of the Fed discussion and comments by Bessent may be limited, saying that “they're coming on an otherwise quiet news day so I think people are focusing on them, but the impact should fade.”

The Treasury will sell $9 billion in 30-year Treasury Inflation-Protected Securities on Thursday.

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.

Traders are watching for any signs of a large increase in applications as the Trump administration lays off government workers.

The yield on benchmark U.S. 10-year notes US10YT=RR was last down 2.4 basis points on the day at 4.511%.

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

The yield curve between two-year and 10-year notes US2US10=TWEB flattened by around a basis point to 25 basis points.

Traders are also concerned that tariffs planned by U.S. President Donald Trump's administration will add to inflation pressures.

Volatility over tariff announcements has fallen in recent weeks, however, as the implementation has been delayed, raising hopes that they are a negotiation tool and may not be implemented or 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.

Ukrainian President Volodymyr Zelenskiy said he was counting on Ukrainian and European unity and U.S. pragmatism as Kyiv faces a mounting crisis in relations with the United States, a major ally prior to Trump's return to office.