(Bloomberg) -- The US is likely to issue more short-dated notes to make up for lost revenues after the Supreme Court overturned President Donald Trump's tariffs, according to a BNY strategist.
John Velis, Americas macro strategist at BNY, said a rough calculation suggests the US is set to lose half of the approximately $20 billion per month it gets in tariff revenues. The US can lean on T-bills to plug that "substantial" gap, helping to explain why the reaction in US Treasuries to Friday's ruling has so far been muted, Velis said.
Greater T-bill issuance would avoid "placing significant upward pressure on long-term yields due to fiscal backsliding," Velis wrote in a note published Tuesday. He pointed to BNY data which shows demand for bills responds nearly inelastically to bill supply, implying an increase would "meet ready demand".
Longer-dated bonds — which are most exposed to fiscal risks in the years ahead — dropped following the tariff ruling, pushing the 30-year yield up as much as six basis points to 4.75%. It has since retreated to about 4.70%.
The muted response in Treasuries and currency markets also reflects elevated uncertainty over what a new trade policy regime will look like, Velis added.
Trump is expected to use his State of the Union address later on Tuesday to criticize the Supreme Court's ruling and reiterate that he will continue to wield the threat of implementing global duties. Within hours of Friday's decision, Trump said he would impose a 10% global tariff — which he's threatened to increase to 15% — and vowed to use other tools to maintain duties.
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