REFINANCING ZIRP
Lawrence Gillum, CFA, Chief Fixed Income Strategist, LPL Financial
The U.S. Treasury market is entering a significant transition period in 2025, facing both structural adjustments and all-too-familiar policy discussions. As the Federal Reserve's (Fed) shift from a zero interest-rate policy (ZIRP) coincides with a substantial $7.5 trillion refinancing cycle, markets are also preparing for another round of debt ceiling negotiations. For investors, this environment presents compelling opportunities in Treasury securities: Yields above 4% across much of the Treasury curve offer attractive risk-free returns (although market volatility is expected to remain elevated), with potential for capital appreciation if yields fall. However, careful security selection is warranted — investors might consider avoiding Treasury Bills (T-bills) maturing around potential debt ceiling deadlines while taking advantage of higher yields in longer-dated securities that extend beyond these near-term political discussions (we think the sweet spot is in the 1–5-year parts of the Treasury curve). While each of these challenges is manageable, their combination requires thoughtful navigation from policymakers and careful consideration from market participants.