Treasury Keeps Debt Auction Sizes Steady — Evening Brief – 10.30.24
The US Department of the Treasury issued its most recent Quarterly Refunding Announcement, which, in contrast to prior announcements, was relatively subdued. It left its quarterly auctions of longer-term debt unchanged as anticipated and reaffirmed its guidance that the sizes are not expected to increase “for at least the next several quarters.”
Treasury announced it will auction $125 billion in securities during next week’s quarterly refunding, consistent with projections. The total issuance will refinance roughly $116.4 billion of Treasurys and generate additional capital from private investors amounting to approximately $8.6 billion.
The securities are: A $58 billion 3-year note, unchanged from last month and unchanged from the last refunding; a $42 billion 10-year note, up $3 billion from last month and unchanged from the last refunding; a $25 billion 30-year bond, up $2 billion from last month and unchanged from the last refunding
Treasury implemented slight increases to Treasury Inflation Protected Securities, or TIPS. It increased the auction sizes of two TIPS issues: the re-opening of the 5-year issue in December and the new 10-year issuance, which slightly exceeded expectations.
Treasury “believes it would be prudent to continue with incremental increases to TIPS auction sizes in order to maintain a stable share of TIPS as a percentage of total marketable debt outstanding.”
During the quarter from November 2024 to January 2025, Treasury intends to keep the November 10-year TIPS reopening auction size at $17 billion, boost the December 5-year TIPS reopening auction size by $1 billion to $22 billion, and raise the January 10-year TIPS new issue auction size by $1 billion to $20 billion
“Based on current projected borrowing needs, Treasury does not anticipate needing to increase nominal coupon or FRN [Floating Rate Notes] auction sizes for at least the next several quarters,” Treasury said, repeating comments from May.
Treasury also stated that, based on current fiscal predictions, it intends to maintain benchmark bill offering quantities through November and would issue one or two CMBs in late November to address its cash management needs at that time.
Considering the substantial growth in total US debt and borrowing, which have escalated interest expenses on the debt to an unprecedented $1.1 trillion, an increasing number of bond strategists have warned that the Treasury may alter its recommendations about the maintenance of stable auction sizes.
Many dealers predicted no change, given that current sizes – most of which are at record highs – are likely to fulfill the government’s funding needs until the second half of 2025, unless the next administration implements an ambitious fiscal stimulus program.
Bloomberg noted that most dealers and economists believe that raising longer-term debt sales is inevitable at some point, as neither presidential candidate has prioritized deficit reduction in their campaigns. And that is what the recent increase in Treasury yields may indicate.
Recent auctions have raised worries about the scale of issuance. The most recent monthly auctions of 2- and 5-year notes, for example, generated higher-than-expected yields, highlighting those concerns.
Separately, the Treasury Borrowing Advisory Commitee stated that, “Lack of resolution of the debt limit runs the risk of undermining the foundation of the US Treasury market,” and “these episodes can cause significant economic uncertainty, affect financial markets and impact US credit ratings.”