The US Treasury boosted the size of its quarterly issuance of longer-term debt for a third straight time, and suggested that no more increases are likely until next year.
The Treasury Department said in a statement Wednesday it will sell $121 billion of longer-term securities at its so-called quarterly refunding auctions next week, which span 3-, 10- and 30-year Treasuries. That matches what most dealers expected, and mirrored the cadence of increases unveiled at the last refunding, in November.
“Based on current projected borrowing needs, Treasury does not anticipate needing to make any further increases in nominal coupon or floating-rate note auction sizes, beyond those being announced today, for at least the next several quarters,” the department said.
Relief from further boosts to auction sizes for longer-term securities may help support demand for Treasuries. Investors for several months now have been particularly sensitive to news on the overall supply of federal debt, at a time when the Federal Reserve has been steadily shrinking its own holdings of US securities.
The Treasury also said Wednesday that it will announce the start-date for its new buyback program in the May refunding announcement, after conducting some small-value operations in April. That program is designed to help the department with its cash management and to improve liquidity for non-benchmark debt.
Borrowing Needs
Treasuries rallied on Monday after the department lowered its estimated borrowing needs for the current quarter. While its debt interest costs have soared since the Fed started hiking rates almost two years ago, yields have slumped since November thanks in part to expectations for monetary policymakers to cut rates this year. Yields also slipped Wednesday.
A slowing or halt of the Fed’s quantitative tightening program will also reduce pressure on the Treasury to raise more debt from the public. Since mid-2022, the Fed has been letting as much as $60 billion in Treasuries mature each month. Traders will be keenly watching the Fed’s policy decision later Wednesday, and Chair Jerome Powell’s press conference for any signal on plans for the QT program and for rate cuts.
Treasury officials told reporters Wednesday that while they have refrained from making any specific timing assumptions for the end of QT, they have set borrowing plans sufficient to address potential changes in that program.
As expected by most dealers, the Treasury also said Wednesday it would keep the size of auctions of 20-year bonds unchanged.
Bill Cadence
With regard to bills, which mature in one year or less, the Treasury said it “expects to maintain bill auction sizes at current levels into late-March,” with modest reductions by then into early April, during the tax-filing season.
That will likely result in a $300 billion to $350 billion net increase in bill supply over the next two months, and a $100 billion to $150 billion reduction in April.
Before Wednesday’s announcement, most dealers assumed that the Treasury would cut back issuance of bills — which mature in a year or less — if the department found itself in the quarters ahead with reduced borrowing needs. That’s after debt managers relied heavily on bills in recent months, with their share of total debt exceeding the 15% to 20% range the Treasury Borrowing Advisory Committee, a panel of market participants, has long recommended.
As for next week’s refunding auctions, they break down as follows:
- $54 billion of 3-year notes on Feb. 6
- $42 billion of 10-year notes on Feb. 7
- $25 billion of 30-year bonds on Feb. 8
The plan reflects 3- and 10-year sales getting boosted by $2 billion and 30-year ones by $1 billion, the same as in the November plan.
As for Treasury Inflation-Protected Securities, or TIPS, the department said it will maintain the February 30-year maturity sale at $9 billion and then increase the April 5-year maturity TIPS to $23 billion. It also said it will boost the March reopening of the 10-year maturity to $16 billion.
Turning to floating-rate notes, the Treasury plans to increase the February and March reopening auction size of the 2-year FRN by $2 billion and the April new issue auction size by $2 billion.
As for other nominal coupon-bearing debt, the plans are as follows:
- 2-year note auctions will be hoisted by $3 billion per month over the period
- 3-year note auctions will be lifted by $2 billion per month
- 5-year notes will rise by $3 billion per month
- 7-year notes go up by $1 billion per month
- No change for the new and reopened 20-year bond auction sizes
- Increases both the new and reopened 10-year note auction sizes by $2 billion, starting in February
- Boosts both the new and reopened 30-year bond auction sizes by $1 billion, starting in February
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out our most recent white papers.
Bloomberg News provided this article. For more articles like this please visit
bloomberg.com.
Read more articles by Liz Capo McCormick
