Treasury Keeps Refunding Steady—But Hints at Future Coupon Increases — Evening Brief – 11.05.25
The U.S. Treasury held its quarterly refunding total at $125 billion, in line with expectations, and said it does not anticipate increasing auction sizes for longer-dated notes and bonds “for at least the next several quarters.” The move underscores Treasury’s continued preference for short-term bills, which remain cheaper to issue amid a softer rate environment. With the Fed cutting rates, 12-month bills yield roughly 3.5%, compared with 10-year notes above 4%, lowering near-term borrowing costs.
The December refunding will include $58 billion in 3-year notes, $42 billion in 10-year notes, and $25 billion in 30-year bonds—all unchanged since May 2024.
While the steady profile was expected by dealers, most anticipate that coupon and long-bond issuance may need to rise by mid-2026 or later to offset structural deficits, despite some recent relief from tariff-related revenue.
The unexpected development: Treasury disclosed it has “begun to preliminarily consider” future increases in nominal coupon and floating-rate note (FRN) auction sizes, citing a need to evaluate structural demand, cost, and risk across issuance profiles. The language caught markets off-guard, triggering a jump in 10-year yields to near weekly highs, as investors priced in the likelihood of more duration supply ahead.
To meet near-term funding needs, Treasury will rely more heavily on weekly bill auctions, cash-management bills (CMBs), and regular TIPS and FRN issuance. Although the department plans modest bill reductions in December, bill auction sizes are expected to increase again by mid-January 2026 to accommodate fiscal outflows.
Bills already account for over 21% of total U.S. debt outstanding, above the Treasury Borrowing Advisory Committee’s long-run recommendation of approximately 20%. Without an uptick in longer-dated issuance, that share is likely to continue climbing—raising questions about rollover risk if rates rise again.
Markets will now watch for formal guidance on when the Treasury shifts from “considering” to implementing larger coupon auctions, a move that would acknowledge that short-term financing—while cheaper today—cannot shoulder the long-term funding burden alone.