The U.S. Treasury Department announced on Wednesday that it plans to maintain current auction sizes for U.S. notes and bonds over the next several quarters. This decision aligns with expectations as the Treasury disclosed a total refunding of $125 billion for the August to October quarter. This refunding aims to raise $14 billion in new cash from private investors and will cover $111 billion of privately held Treasury notes maturing on August 15.
The upcoming auctions will see the Treasury selling $58 billion in three-year notes, $42 billion in 10-year notes, and $25 billion in 30-year bonds next week. These amounts are consistent with those announced during the May refunding, indicating a steady approach to debt issuance.
Zachary Griffiths, a senior investment grade strategist at CreditSights, commented that this refunding was anticipated and suggests that any significant changes to borrowing strategies, such as increasing coupon sizes, might not occur until 2025. He noted that the Treasury seems to be preserving flexibility, particularly given the potential for political and fiscal uncertainty following the 2024 election and a likely debt ceiling debate in early 2025.
Earlier in the week, the Treasury revised its borrowing estimate for the third quarter to $740 billion, a decrease of $106 billion from the April projection. This adjustment was attributed to lower redemptions in the Federal Reserve’s System Open Market Account (SOMA) and a higher starting cash balance for the quarter.
To address any unexpected changes in borrowing needs, the Treasury plans to adjust regular bill auction sizes and utilize cash management bills (CMBs) in the upcoming quarter. Notably, the Treasury expects to slightly increase the size of short-term bill offerings next week and maintain this level through August, with potential issuance of a short-term CMB towards the end of the month to manage cash flow.
Looking ahead to September, small reductions in short-term bill auction sizes are anticipated to manage cash flow ahead of the mid-month tax payments. However, by October, the Treasury plans to increase all bill auction sizes in response to expected fiscal demands.
