The U.S. Treasury, under the leadership of Scott Bessent, is anticipated to reject calls from Wall Street dealers for more explicit guidance on upcoming debt sales, particularly concerning an increase in coupon-bearing debt. Most dealers now expect any boost to coupon sales to occur later than previously thought, with many targeting May 2027. This decision comes despite the Treasury's updated borrowing estimate and quarterly refunding statement, with analysts placing the deficit close to a $2 trillion yearly pace.
While some banks like Deutsche Bank AG, Wells Fargo, and CIBC Capital Markets anticipate a tweak in Wednesday's guidance to prepare for earlier, larger coupon sales, the prevailing sentiment among dealers is that the Treasury will reiterate its current stance of no increases in note and bond issuance for "at least the next several quarters." This guidance has been in place since the Biden administration and was previously criticized by Bessent for potentially suppressing long-term borrowing costs ahead of elections. Political considerations, such as avoiding a rise in yields before upcoming midterm elections, are believed to be influencing this decision.
When the Treasury eventually does increase coupon issuance, most dealers expect it to prioritize short and medium maturities over 10-, 20-, and 30-year bonds. This strategy is supported by statements from Treasury officials in May, who focused on "trends in structural demand and potential costs and risks of various issuance profiles," leading strategists at TD Securities to suggest any increase would be concentrated in shorter maturities. Long-term yields are already under pressure, with the 30-year yield hitting 5.27% last week, a level not seen since 2007, and the 10-year at 4.73%. JPMorgan Chase & Co. analysts project a cumulative funding gap of $3.7 trillion from 2027 through 2030, with borrowing needs outpacing supply starting in fiscal year 2027.
The upcoming refunding auctions include $58 billion of three-year notes on August 11, $42 billion of ten-year notes on August 12, and $25 billion of thirty-year bonds on August 13. The Treasury has increasingly relied on bills to meet borrowing needs, with Bank of America Corp. calculating that keeping coupon issuance stable through fiscal year 2027 would push the T-bill share of outstanding debt to nearly 25%. While this strategy helps temper costs due to lower bill rates, it exposes debt servicing costs to front-end rate shocks. RBC Capital Markets' Blake Gwinn suggests the Treasury should open up optionality by tweaking guidance, despite the risk of pushing up yields.
