The Treasury’s quarterly refunding week opens on Monday with the financing estimates, the department’s updated borrowing requirement for the October to December quarter and its first look at January to March, followed on Wednesday by the refunding statement itself. In August the Treasury estimated 628 billion dollars of privately held net marketable borrowing for the current quarter, assuming an 850 billion dollar cash balance at the end of December, after raising the July to September estimate to 739 billion dollars.
The decision investors are watching is guidance. The Treasury has for several quarters said it anticipates maintaining nominal coupon and floating rate note auction sizes for at least the next several quarters. Citigroup expects that language to give way, with reductions in 20 year and 30 year issuance beginning this month, while JPMorgan strategists expect guidance to be maintained through 2027, with auction sizes stable until August next year and increases then concentrated in two year to 10 year maturities. If sizes are unchanged, the refunding totals 125 billion dollars: 58 billion of three year notes on November 9, 42 billion of 10 year notes on November 10 and 25 billion of 30 year bonds on November 12.
Buybacks are the second decision. The August statement anticipated up to 38 billion dollars of liquidity support purchases of off the run securities over the August to October quarter, plus up to 25 billion dollars of cash management purchases at the short end. Two weeks later, after the 30 year yield touched its highest in 19 years, the Treasury raised the maximum for liquidity support operations in the 10 to 20 year and 20 to 30 year sectors from 2 billion dollars to at least 4 billion per operation, and operations since then have run with a maximum of 6 billion dollars in those sectors, according to Newsquawk. Wednesday’s statement is expected to address sizes beyond November 4.
The stakes are set by the level of yields. The 10 year closed Friday at 4.93 percent and the 30 year at 5.31 percent in this site’s market tables, and bills already account for about 22 percent of outstanding marketable debt, above the 20 percent long run average the Treasury Borrowing Advisory Committee has recommended. A shift toward bills would relieve long end supply pressure now at the cost of more refinancing later, which is the trade off the week’s two releases will price.