The refunding: The U.S. Treasury Department on Wednesday said it would sell $121 billion in notes and bonds next week. That’s up from $112 billion last quarter.
The department will auction $54 billion of 3-year Treasury notes
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on Feb. 6, $42 billion of 10-year notes
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on Feb. 7 and $25 billion of 30-year bonds
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on Feb. 8.
Auction sizes: Treasury said it would continue to gradually increase coupon auction sizes through April. The composition of the increases is the same as November, a Treasury official said. The department had flagged the likelihood that there would be increases in coupon auction sizes this quarter.
Looking ahead, Treasury said it did not expect to make any further increases in auction sizes “for at least the next several quarters.”
Key details: Treasury announced it plans to increase the auction sizes of the 2- and 5-year Treasury notes by $3 billion per month, the 3-year by $2 billion per month, and the 7-year by $1 billion per month this quarter.
Treasury plans to increase both the new issue and reopening auction size of the 10-year Treasury note by $2 billion and the 30-year bond by $1 billion.
The department also plans to increase the February and March reopening auction size of the 2-year Floating Rate Note by $2 billion and the April new issue auction size by $2 billion.
Big picture: Some experts are worried about the outlook. Former U.S. Treasury Secretary Robert Rubin said the U.S. budget deficit was in a “terrible place.”
Treasury needed to borrow almost $2.7 trillion in the last fiscal year than ended on Sept. 30.
Stephen Stanley, chief U.S. economist at Santander, said he expects that borrowing to swell to nearly $3 trillion in this fiscal year and remaining above $2.5 trillion in fiscal year 2026.
“If bond markets return to their concerns about an unsustainable fiscal
track, which became acute for a time in the second half of last year, the federal government may finally be forced to deal with what is becoming an increasingly frightful fiscal outlook. I am guessing that the winner of
November’s election could find themselves compelled to propose deficit reduction legislation in 2025,” Stanley said, in a note to clients.
Treasury buybacks: Treasury said it intends to announce the date of the first regular buyback operation at the May refunding. It will conduct some tests in April.
Bill issuance: Treasury said it will maintain bill auction sizes at current levels into late-March. This will likely result in a $300-$350 billion net increase to privately held supply over the next two months. By late March or early April, the department expects to modestly reduce short-dated bill auction sizes going into tax season. This will likely mean a $100-$150 billion net reduction to privately held supply during April.
TIPS Financing: Treasury plans to continue with small increases to TIPS auction sizes. The department plans to increase the March 10-year TIPS reopening auction size by $1 billion to $16 billion and increase the April 5-year TIPS new issue auction by $1 billion to $23 billion.
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