Core Viewpoint - The implementation of the large-scale tax cuts and spending bill by the Trump administration is expected to lead to a significant increase in the supply of short-term Treasury bonds to address future fiscal deficits, potentially amounting to trillions of dollars [1][3]. Group 1: Fiscal Impact - The Congressional Budget Office (CBO) estimates that the new legislation will increase the national deficit by up to $3.4 trillion from fiscal years 2025 to 2034 [3]. - The U.S. Treasury may initiate a "supply flood" of short-term bonds to manage the substantial financing needs arising from this deficit [1][3]. Group 2: Market Reactions - Concerns about oversupply in the short-term bond market have already manifested in rising yields, with one-month Treasury yields increasing significantly since the beginning of the week [1]. - The market's focus has shifted from concerns about long-term bonds to the implications of short-term bond supply and demand dynamics [5]. Group 3: Government Strategy - Issuing short-term bonds is seen as a cost-effective choice for the government, as the current yields on one-year and shorter bonds are over 4%, yet still lower than the nearly 4.35% yield on ten-year bonds [4]. - The current administration, including President Trump and Treasury Secretary Mnuchin, has expressed a preference for short-term debt issuance over long-term bonds [4]. Group 4: Supply and Demand Dynamics - The Treasury Borrowing Advisory Committee (TBAC) suggests that short-term bonds should not exceed 20% of total outstanding debt, but estimates indicate this could rise to 25% to accommodate the new deficit [5]. - There is a substantial demand for front-end debt, supported by approximately $7 trillion in money market funds, which is expected to absorb the increased supply of short-term bonds [5][6].