The U.S. Treasury may issue up to $1 trillion in new debt in H2 2025

Wall Street is on alert as the second half of 2025 gets ready to unload as much as $1 trillion in new Treasury supply, with the bond market bracing for the impact.

This wave is expected to slam into markets once lawmakers deal with the federal debt ceiling, possibly eliminating it entirely. The timeline isn’t locked, but it’s close, and every trader on the floor knows it.

The flood of Treasuries will mainly come in the form of shorter-term debt, especially Treasury bills, which mature in a year or less. These are easier to issue quickly, but they’ll also test demand harder because of how much is coming in at once.

Trump’s fiscal bill expands deficit, forces more Treasury issuance

President Donald Trump is pushing a new tax-and-spending bill through Congress that the Congressional Budget Office says will expand the federal deficit by $2.8 trillion over the next decade. The bill gives the economy a short-term lift, but the long-term cost will be higher debt, forcing the government to issue more Treasuries to plug the gap.

Treasury Secretary Scott Bessent said on Tuesday that the Senate might vote Friday on the bill. He also said he’s confident the House will pass it afterward. The key date hanging over this discussion is what Bessent called the “X-date”—the point where the government runs out of borrowing room under the current debt ceiling. That’s expected sometime between mid and late summer.

Once the ceiling is lifted or removed, the Treasury Department will be able to return to the market and sell more debt. And it won’t be in small chunks either.

Mark Cabana, who heads U.S. rates strategy at BoFA Securities, said during a panel Tuesday at the Money Fund Symposium in Boston that the market should expect a very fast and heavy batch of supply. “You’re going to see this big issuance clip and it’s coming within the next few months,” Cabana said. “You can debate exactly when they raise the debt limit, but the X-date is coming soon.”

He predicted the Treasury would pump out around $1 trillion by year-end. Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, made a similar forecast. He said roughly $700 billion of that will arrive in August and September alone.

Repo rates could rise as money market funds shift away from Treasuries

That kind of concentrated flood of Treasury debt won’t just sit quietly in a portfolio; it’ll pressure the repo market. That’s where banks and funds borrow short-term cash using Treasuries as collateral.

When too many Treasuries enter the system, repo rates can first fall from excess supply, but if demand doesn’t keep up, those same rates can quickly rise as lenders ask for more to cover the risk of holding too much paper.

Goldberg said the surge in supply will mostly hit the two- to seven-year section of the Treasury curve. “Our expectation is that the Treasury keeps issuance focused on the very front end of the curve in terms of coupons,” he said.

He made it clear that no major changes to auction sizes are expected until mid to late 2026, naming August or November as possible review points.

Not only is the long end of the curve—10s, 20s, 30s—off the radar, but Goldberg also said it could actually see a reduction in size. “I wouldn’t be surprised if there are some decreases in size on the long end,” he said, explaining that 2s, 3s, 5s, 7s, and bills are the key tools the Treasury will use for financing in the near term.

There’s one possible absorber for the coming Treasury wave: money market funds, which hit a record $7.4 trillion in assets this June. But there’s a twist. These funds have already started to move away from Treasuries and into private repo deals, which offer higher rates.

So even though the cash is out there, it doesn’t mean it’s going into Treasury paper. That could leave a gap in demand, just as the government drops the largest batch of debt in recent memory.

All eyes now turn to the debt ceiling vote and the August-September issuance window. If the ceiling is lifted in time, and if demand can keep pace, the market might absorb the blow. If not, bond desks are in for a rough ride.

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