The US Treasury's auction of 20-year bonds on Wednesday won’t be the last, but this long-term debt instrument's days may be numbered.

Long-term borrowing costs are high. Yields on 10-year and 30-year Treasuries earlier this month rose to their highest levels since 2002, reaching 5.36% and 5.66%, respectively. The 5.469% that Treasury paid to borrow $13 billion on Wednesday was the highest yield at a 20-year auction since 1986. Discussion of whether the government should scrap this less liquid maturity altogether has intensified recently.

Meanwhile, US federal debt has crossed the $40 trillion threshold, while Washington's interest bill for fiscal 2026 hit a record $1.36 trillion, putting interest payments as a share of GDP at a historic high of 3.2%. These metrics are all rising.

When debt is above $40 trillion, a few basis points lower in borrowing costs can save billions. This points to an obvious strategy for lowering average government borrowing costs: lighten the load at the long end of the curve and borrow more at the front, where rates are lower.

US Treasury Secretary Scott Bessent appears intent on doing just that. In August, Treasury announced it would at least double its $2 billion scheduled buybacks of longer-dated debt, referring to 10-year notes and 20- and 30-year bonds. It later increased that to $6 billion.

Treasury said this reflected its "desire to provide greater liquidity support" to certain parts of the curve. That may be true, but it also just happens to align with longer-term efforts to shorten Treasury’s maturity profile. Around 22% of US public debt is currently in T-bills, which mature in one year or less, compared with around 15% five years ago.

This is far from a “risk-free” strategy. By increasing the share of short-term debt, the government gives up the security of longer-term financing, meaning it must refinance more often. This "rollover risk" exposes the government to bouts of market shocks or volatility. But Bessent has few options.

A sudden burst of deficit-reduction fervor could sweep across Washington, leading to huge spending cuts or large tax hikes. But that's unlikely.

The US budget deficit hit $2 trillion in fiscal 2026, more than 6% of GDP, and there is little appetite in the White House to tackle it. President Donald Trump recently pledged to mail $5,000 checks to every adult in the country if his Republican Party wins both houses of Congress in the midterm elections on November 3, a splurge that would cost over $1.1 trillion, according to the Committee for a Responsible Federal Budget.

Absent serious belt-tightening, Treasury has to consider other measures to help lower long-term borrowing costs.

One could be reducing sales of the 20-year bond or getting rid of it entirely. The 20-year is one of the least liquid parts of the yield curve, with a limited supply of natural buyers. That means the government often has to offer a slightly more attractive yield.

Markets will find out more in the first week of November when Treasury unveils its quarterly refunding plans. What can we expect?

Normally, very little. In the words of the Treasury itself, the debt auction process, calendar and issuance amounts should be “regular and predictable” to ensure smooth functioning of the world's largest and most important market. But these are not normal times.

The Treasury’s $6 billion accelerated buyback plan proved to be a bit of a flop, as the government failed to purchase the full amount in the first two rounds of buybacks in September. More importantly, long-dated yields rose as much as 50 basis points following the buyback announcement.

Citi's US rates strategists expect 20-year and 30-year auction sizes to be reduced by $3 billion, with the gap filled by additional bill issuance. Treasury may also opt for more flexibility by keeping auction sizes unchanged but signaling that future adjustments are in play.

Alternatively, Treasury may decide to retain the status quo. Analysts at JPMorgan reckon the scale of borrowing required in the coming years is so huge that it would "not be prudent" to discontinue a "critical" source of funding from an instrument that raises $168 billion a year. What's more, yields might be high, but they're not disconnected from current economic fundamentals, they argue.

Given that the midterm elections are also in the first week of November, Treasury’s quarterly refunding plan may not be absolutely top of mind for investors. But that might be a mistake, as subtle changes in the government’s funding strategy could have big implications down the line.