The U.S. Treasury, in its latest quarterly refunding statement, opted to maintain current auction sizes for nominal coupon and floating-rate notes for at least the next several quarters, rejecting calls from some Wall Street dealers to increase long-term debt sales. This decision implies that the Treasury will continue to rely heavily on short-term Treasury bills to meet the government's borrowing needs. The Treasury will be offering $125 billion of securities to refund approximately $96.3 billion of maturing debt, raising about $28.7 billion in new cash from private investors. This includes $58 billion in 3-year notes on August 11, $42 billion in 10-year notes on August 12, and $25 billion in 30-year bonds on August 13.
This move comes amidst a backdrop of rising long-term yields, with 30-year bond yields recently hitting their highest levels since 2007. Some analysts, including JPMorgan strategists, had suggested tweaking the guidance by removing the phrase "at least" to provide more flexibility. However, the Treasury's decision is seen by some as a politically motivated move to avoid pushing yields higher, which could impact the upcoming midterm elections. Scott Bessent, the Treasury Secretary, has also reportedly focused on lowering long-term yields.
While the Treasury maintained its guidance, a subtle change in wording from "no increases" to "no changes" for auction sizes has been noted by some market participants. Blake Gwinn, head of U.S. rates strategy at RBC Capital Markets, suggested that it behooves the Treasury to open up optionality by tweaking its guidance, even with the risk of pushing up yields. Dealers expect that any increase in coupon sales may now be pushed back, with many targeting May 2027 for a potential change.
