The refunding: Treasury announced Wednesday it would sell $112 billion in notes and bonds next week. That’s up from $103 billion last quarter. This issuance will refund $102.2 billion of notes maturing on Nov. 15 and raise new cash of approximately $9 billion.
The department will auction $48 billion of 3-year Treasury notes
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on Nov. 7, $40 billion of 10-year notes
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on Nov. 8, and $24 billion of 30-year bonds
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on Nov. 9.
Auction sizes: Treasury said it intends to continue gradually increasing coupon auction sizes this quarter in addition to the sizable increases in the prior quarter.
“These changes will make substantial progress towards aligning auction sizes with projected borrowing needs, Treasury anticipates that one additional quarter of increases to coupon auction sizes will likely be needed beyond the increases announced today,” the statement said.
Treasury officials said the the pattern of auction by auction increases this quarter largely follows the pattern from the August refunding but with longer tenors increasing at a more moderate rate. The officials said the increases were broadly consistent with expectations from the primary dealers, the financial institutions that are trading counterparties of the New York Fed.
Bill issuance: The department said it expects to maintain bill auction sizes at current level until late this month. Then it anticipates implementing modest reductions that will be maintained through mid-to late-January.
Treasury said it is still evaluating whether to change the regular 6-week cash management bill to benchmark status.
Big picture: On Monday, Treasury announced it will borrow $1.59 trillion over the next six months.
The challenge for the Treasury is to figure out how they fund the government’s large and growing finance need, said Alex Pelle, U.S. economist at Mizuho Securities, in a note to clients.
There is also little chance of a bipartisan agreement to bring the debt on a more sustainable path, he added.
“It would be a bit of an exaggeration to make Titanic references related to the fiscal outlook, but the USS Budget Situation is taking on water at an alarming rate,” said Stephen Stanley, chief U.S. economist at Santander.
Key details: This quarter, the department said it would increase the sizes of 2-year and 5-year notes by $3 billion per month, the 3-year by $2 billion per month and the 7-year by $1 billion per month.
At the same time, Treasury plans to increase both the new issue and reopening auction size of the 10-year by $2 billion and the 30-year bond by $1 billion. The size of the 20-year bond new issue and reopening auction size will be unchanged.
The department plans to increase the November and December reopening auction size of the 2-year floating-rate-note by $2 billion and the January new issue auction size by $2 billion.
Bill issuance: Treasury said it would be prudent to continue with incremental increases to TIPS auction sizes.
Treasury buybacks: Treasury said it will provide an update on the timing of implementing a regular buyback program at the next refunding in February.
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