Running Into a Wall – Treasury Market’s 2025 Stress Test

**Summary** 2025 is shaping up to be a reckoning year for the Treasury market, and it all boils down to debt management. With $3.6 trillion in short-term maturities rolling over, the shift from Janet Yellen’s short-term borrowing binge to Scott Bessent’s long-end-focused strategy feels less like a pivot and more like a survival maneuver. The Treasury’s plan to issue longer-term debt introduces supply-side pressures that could steepen the yield curve and elevate borrowing costs. It’s Econ 101 supply-demand mechanics—but on a trillion-dollar scale. Full article (disclosure: I wrote it): [https://tetractysresearch.com/p/running-into-a-wall](https://tetractysresearch.com/p/running-into-a-wall) **Key Takeaways:** * **Short-Term Debt Reckoning:** Yellen’s reliance on Treasury bills (T-bills) was a liquidity sugar rush, keeping costs low and flexibility high. Now, the 2025 maturity wall will test whether we can refinance at the long end without snapping the market’s resolve. * **RRP and Liquidity Drains:** Reverse Repo balances have dwindled from $2.5T to $250B, signaling less of a cushion to absorb liquidity shocks. This complicates QT as future Treasury issuance drains liquidity more directly. * **Long-End Supply Pressure:** Pension funds and insurers aren’t nimble enough to absorb a wave of long-duration issuance without demanding a term premium. Expect steeper curves, rising yields, and a squeeze on fiscal stability. **Fed Drama and Trade Insights:** The Fed’s “holiday inflation tinkering” means inflation forecasts will see more revisions than a first draft of War and Peace. This volatility aligns with my thesis on heightened inflation risk for 2025, underscoring the importance of hedges in both equities and rates. **Bonus Note:** The December NFP print validated the themes in this piece. Strong jobs headline? Sure, but wage growth is diverging, and the labor market's fragility mirrors the financial system’s eroding buffers. Treasury yields are climbing, liquidity is tightening, and inflation is resurfacing. Buckle up—this isn’t just a marathon, it’s a mountain climb. **Final Trades to Watch:** * Long ZT with half-year 20-delta calls: Hedge for monetary tightness impacting Main Street. * Mix of March/April 20-delta puts on ES and NQ: Cheap hedges worth buying while the market catches its breath. * Stay short ZB: Rising long-end yields will weigh on equity valuations and liquidity-sensitive assets. In short: The debt wall isn’t just a challenge for the Treasury; it’s a seismic shift for markets. Position accordingly. Would love to hear the sub’s thoughts—especially from those tracking short-end vs. long-end dynamics or grappling with inflation volatility in your trades.