• BNP Paribas (BNP.PA) cautions that eliminating the 20-year Treasury bond could backfire, pushing long-term yields higher by signaling panic rather than easing borrowing costs.
  • The bank maintains a short position on the 30-year Treasury, targeting a yield of 5.8%, up from around 5.64% currently.
  • Analysts argue that without addressing underlying inflation and fiscal deficits, tinkering with debt issuance is merely a “band-aid on a gunshot wound.”

A Dangerous Gambit

Eliminating the 20-year Treasury bond might seem like a neat solution to rising borrowing costs, but BNP Paribas warns it could have the opposite effect. According to a Bloomberg report citing the French bank, removing the maturity would reduce supply in that segment but could also convince investors that Washington is struggling to control its finances, prompting them to demand higher yields elsewhere. The bank reiterated its short position on the 30-year Treasury, targeting a yield of 5.8% compared with 5.64% at the time of the report.

The debate comes amid growing concerns over the U.S. fiscal trajectory. The 20-year bond, reintroduced in 2020 after a 34-year hiatus, has become a relatively expensive financing tool. A September 15 auction cleared at 5.42%, the highest yield since the maturity was discontinued in 1986, and soft demand pushed yields even higher afterward. That pressure has fueled speculation that Treasury might scale back or eliminate the bond to save costs.

A Band-Aid on a Gunshot Wound

But BNP argues that such a move would be a mistake. “Treasury interventions are ultimately a ‘band-aid on a gunshot wound’ unless underlying inflation and fiscal deficits are addressed,” the bank said in its note. The warning echoes concerns raised after Treasury’s larger buyback operations in August and September failed to deliver lasting relief. On September 10, Treasury purchased $5.187 billion of 10-year notes and 20-year bonds, yet yields rose following the announcement. Similarly, an August 19 expansion of long-dated buybacks from $2 billion to at least $4 billion initially lowered yields, but analysts questioned whether the relief could survive persistent deficit financing.

The distinction between buybacks and issuance cuts is crucial. Buying back existing bonds to support liquidity is different from permanently stopping new issuance. Neither action eliminates the government’s underlying financing requirement, which continues to balloon as total public debt approaches $40 trillion.

Market Skepticism and Policy Credibility

The proposal to axe the 20-year bond has also raised questions about Treasury’s commitment to “regular and predictable” debt management. Treasury Secretary Scott Bessent’s enlarged buybacks have already drawn criticism from economists like Jefferies (JEF)’ Thomas Simons, who called the surprise approach damaging to communications credibility. Evercore ISI (EVR) analysts acknowledged its tactical effectiveness but questioned its durability.

Internationally, the long-bond selloff has unsettled global investors. Reuters (TRI) reported that the yield surge is a global funding-market issue, not just a domestic one. BNP’s warning highlights the risk that any abrupt change in issuance could be interpreted as a sign of desperation, encouraging bond vigilantes to push yields even higher.

What’s Next

For now, the 20-year bond remains in place, with Treasury auctioning it monthly. The key developments to watch are an official Treasury issuance decision, subsequent auction demand, and whether any initial decline in yields persists. BNP’s 5.8% target on the 30-year yield implies a further 16-basis-point rise, but that is a strategist’s forecast, not a guaranteed outcome. As one analyst put it, “This is about credibility—not just supply and demand.”

Correction: An earlier version of this article misstated the size of Treasury’s September 10 buyback. It was $5.187 billion, not $5.187 million.