Treasury Sticks to Script with $125B Quarterly Refunding
The U.S. Treasury avoided surprises in its quarterly refunding announcement, outlining issuance plans that largely matched market expectations while reinforcing its reliance on Treasury bills to finance rising federal spending.
U.S. Department of the Treasury said it will issue $125 billion in coupon securities this quarter, including $58 billion in 3-year notes, $42 billion in 10-year notes, and $25 billion in 30-year bonds at auctions next week. Auction sizes for notes and bonds will remain unchanged through May and are expected to stay steady for “the next several quarters.”
While longer-dated issuance remains capped, Treasury emphasized that bills will continue to shoulder a greater share of funding needs. That reliance, however, will ease temporarily around tax season. By late March, Treasury expects to incrementally reduce short-dated bill auction sizes ahead of the April 15 tax date, resulting in a cumulative $250 billion to $300 billion net decline in total bill supply by early May. The department said it will “maintain the offering sizes of benchmark bills at current levels into mid-March.”
Treasury also provided updated cash balance assumptions. It projects an $850 billion Treasury General Account balance at the end of March, but estimates the TGA could peak around $1.025 trillion by late April based on current refunding-quarter projections.
To support market functioning, Treasury said it expects to purchase up to $38 billion in off-the-run securities across maturities for “liquidity support,” along with up to $75 billion in securities in the one-month to two-year sector for cash management purposes during the coming quarter.
The department added that it is “monitoring” the Federal Reserve’s expanded bill purchases. In December, the Fed surprised markets by announcing it would buy $40 billion per month in Treasury bills through April to ensure ample reserves in the banking system. Treasury also flagged “growing demand for Treasury bills from the private sector” as a factor shaping its issuance strategy.