Treasury's Refunding Statement Hints At Increased Issuance In More Liquid Parts Of Yield Curve

The U.S. Treasury released its quarterly refunding statement Wednesday, letting anxious bond holders catch some breath.

The “Treasury currently expects privately-held net marketable borrowing of $776bln in Q1 FY 2024… lower than what was cited at the August refunding, primarily due to projections of higher receipts which were somewhat offset by higher outlays,” the report said.

While the Fed’s FOMC meeting Wednesday is in the spotlight for most market watchers, fixed income investors are watching the U.S. Treasury. The Treasury’s borrowing plans help bond market investors such as those invested in the iShares 20+ Year Treasury Bond ETF TLT, the iShares 7-10 Year Treasury Bond ETF IEF and the SPDR Bloomberg 1-3 Month T-Bill ETF BIL better position themselves and their portfolios.

The U.S. Department of the Treasury is offering $112 billion in Treasury securities to refund approximately $102.2 billion of privately held Treasury notes maturing on Nov. 15, 2023. This issuance will raise new cash from private investors of approximately $9.8 billion. The securities are:

• A three-year note in the amount of $48 billion, maturing Nov. 15, 2026;
• A 10-year note in the amount of $40 billion, maturing Nov. 15, 2033; and
• A 30-year bond in the amount of $24 billion, maturing Nov. 15, 2053.

Source: Nov 1 Quarterly Refunding Statement – US Treasury

Also Read: 10-Year Yield At 5% Triggers Waves Of Treasury Buyers: Bill Ackman, Technical Indicators Hint At Potential Shift

The Treasury said it recognizes that 10-year yields have experienced significant fluctuations, trading within a 100-basis-point range since the last meeting in August. Two-year Treasury yields have been comparatively more stable but still traded in a 45-basis-point range.

Strong economic and labor market data, the possibility of a higher neutral interest rate, supply-demand dynamics and a positive “term premium” in long-dated Treasury securities were cited as factors contributing to the significant fluctuations seen in bonds along the far end of the yield curve.

The report, in essence, underscored the need for Treasury to maintain flexibility in its issuance strategy, citing examples to lay down the fiscal and economic backdrop. It reemphasized the importance of addressing factors like the global macroeconomic outlook, term premium and global monetary policy synchronization when evaluating demand for U.S. Treasuries.

The Treasury Committee recommended considering increased issuance in more liquid parts of the yield curve and retaining flexibility with T-Bill share in the medium term. The report suggests no increase in 20-year issuance and a more modest increase in seven-year issuance relative to other tenors.

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