The US Treasury indicated it’s not looking to boost sales of notes and bonds until well into next year, in a decision that will see the government increasingly rely on bills to fund the budget deficit.
In its so-called quarterly refunding statement Wednesday, the department said it anticipated keeping auction sizes unchanged for nominal notes, bonds and floating-rate notes, “for at least the next several quarters.” That language, which it’s been using since early last year, reflects the higher cost of issuing longer-dated securities compared with bills, which mature in up to a year.
Next week’s auctions of 3-, 10- and 30-year maturities will total $125 billion, the same amount going back to May last year.
Dealers had widely expected the move. Most don’t see an increase in issuance of notes and bonds until mid-2026 or later to help finance federal deficits, which have declined slightly in part because of tariff revenue. Federal Reserve interest-rate cuts have pulled down yields on the shortest-dated US debt, making it more attractive for the Treasury to sell those maturities. While 10-year yields are currently a bit above 4%, bills due in 12 months are around 3.5%.
“Looking ahead, Treasury has begun to preliminarily consider future increases to nominal coupon and FRN auction sizes, with a focus on evaluating trends in structural demand and assessing potential costs and risks of various issuance profiles,” the Treasury said in a press release.
As for next week’s refunding auctions, they will be made up of:
- $58 billion of 3-year notes on Nov. 10
- $42 billion of 10-year notes on Nov. 12
- $25 billion of 30-year bonds on Nov. 13
“The idea that Treasury will need to increase auction sizes in the future isn’t a surprise, given the outlook for deficits,” said John Canavan, lead analyst at Oxford Economics. The decision to highlight that “seems like prudent early management, rather than a sign that increases are necessarily coming down the pike sooner than anticipated, though.”
Laying Groundwork
Dealers have long expected the Treasury to at some point lay the groundwork for an increase in sales of longer-dated obligations, given that the government continues to run historically large fiscal deficits – boosting the overall debt load. As securities sold during the record deficits of the pandemic era, in 2020 and 2021, come due in coming years, Treasury note sales would only suffice to repay what’s maturing.
The Fed has recently emerged as a fresh source of future demand for Treasury securities. Last week, it said it would stop shrinking its holdings of federal debt as of Dec. 1, but it also plans to recycle maturing mortgage securities into Treasury bills.
The Treasury said it expects to keep the sizes of benchmark bills steady into late November, and then modestly reduce short-dated bill auction sizes in December. By the middle of January, it said it anticipates increasing bill auction sizes based on expected fiscal outflows.
The share of bills compared with overall outstanding debt is set to rise unless the Treasury boosts longer-dated issuance. The ratio is on course to climb past 26% by the end of 2027, Citigroup Inc. estimated ahead of Wednesday’s announcement.
Last year, the Treasury Borrowing Advisory Committee — a panel of dealers, investors and other market participants — recommended it average around 20% over time. As of September, the ratio was over 21%.
TIPS, Buybacks
For November through January, the department said it plans to maintain this month’s 10-year Treasury Inflation- Protected Securities reopening auction at $19 billion, while increasing the December 5-year TIPS reopening sale by $1 billion, to $24 billion. It will keep the January 10-year TIPS new issue auction at $21 billion.
The department also released a tentative schedule for buybacks of older Treasuries across the 10- to 20-year and 20- to 30-year sectors. The plan is for four operations over the refunding quarter, each for as much as $2 billion, it said.
Treasury also said it “anticipates that over the course of the upcoming quarter it will purchase up to $38 billion in off-the-run securities” across maturities for liquidity support.
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