U.S. Treasury Secretary Scott Bessent has shown an unexpected willingness in recent months to intervene in the bond market and push yields lower, and now Wall Street is preparing for the biggest adjustment to U.S. Treasury issuance guidance since early 2024.
Many traders expect the Treasury Department to revise that guidance in its quarterly policy statement. For more than two years, the guidance has signaled that issuance of medium- and long-term Treasuries would remain stable. A change in Wednesday's statement could pave the way for reducing issuance of the longest-dated Treasuries in 2027, while balancing that with larger auctions of Treasury bills and shorter-dated notes.
Some institutions are preparing for more aggressive action. Citigroup expects the Treasury to announce cuts to 20-year and 30-year bond issuance starting this month, effectively departing from the guidance given in the previous so-called quarterly refunding statement. Just one week after the last plan was released, Bessent unexpectedly expanded buybacks of outstanding Treasuries, a move seen as a response to surging yields.
"The buybacks are too small to really have a material impact," April LaRusse, head of investment specialists at Insight Investment, said in an interview. She put it bluntly: "If you run the Treasury and your primary power is issuance, then if you are unhappy with where yields are, you adjust issuance."
Still, one factor to consider if any major adjustment is made this week is that long-term Treasury yields have already retreated after rising in early October to the highest levels in more than two decades. Even so, the 30-year yield was still above 5.30% on Friday, roughly matching the level at which Bessent intervened in mid-August by expanding the buyback program.
Another consideration is that if the Treasury at some point relies more heavily on Treasury bills maturing within a year to meet growing financing needs, investors' capacity to absorb them will inevitably be tested. Because bills have very short maturities and must be constantly refinanced, the U.S. is now auctioning more than $500 billion every week, making the Treasury more vulnerable to sudden market swings. Last week, Treasury issuance reached a record $839 billion.
Phoebe White, head of U.S. rates strategy at UBS Group, said that when it comes to adjusting the issuance strategy, "the likelihood of guidance is higher than that of immediate action." Still, she said the Treasury's recent "unconventional" approach does "raise the possibility that its actions will continue to diverge from historical practice." UBS is among the institutions that expect the actual issuance sizes to change only next May.
The Treasury effectively opened the door to a policy shift in August, when officials made a subtle wording adjustment to the guidance, saying they were evaluating possible future "adjustments" to coupon-bearing and floating-rate note issuance, replacing an earlier reference to a potential "increase."
As for next week's quarterly refunding auctions, if issuance sizes remain unchanged, the total would be $125 billion, including: a $58 billion 3-year note auction on Nov. 9, a $42 billion 10-year note auction on Nov. 10, and a $25 billion 30-year bond auction on Nov. 12.
Since Bessent's predecessor, Janet Yellen, established the current guidance, which anticipated that medium- and long-term Treasury issuance would remain stable over the coming quarters, traders have expected issuance to eventually resume growing. The reason is that U.S. public debt keeps climbing, while the government's annual deficit is about $2 trillion.
On Monday, the Treasury will update its estimate of borrowing needs for the latest quarter. To prepare for Wednesday's statement, the Treasury asked in its routine pre-refunding survey to primary dealers about "structural changes" in investor demand for U.S. Treasuries, and also asked, "How should the Treasury think about adjusting auction sizes in the future?"
JPMorgan strategists led by Jay Barry wrote in a quarterly refunding preview that at the heart of the Treasury's recent series of actions is its discomfort with "the level of yields." Even so, the team expects the Treasury to retain the phrase "for the next several quarters" into 2027 and keep auction sizes unchanged until August next year, after which a round of increases would begin, focused on 2-year to 10-year notes.
JPMorgan's view contrasts with that of many traders who expect the guidance to change. A Barclays team led by Anshul Pradhan recommended that officials change "at least the next several quarters" to "the next several quarters." The team said doing so would give the Treasury flexibility in both "the timing and the composition of issuance."
Although investors have occasionally called for the phrase to be removed, some version of the current wording has been in place since January 2024. Other banks, including Bank of America, Goldman Sachs Group and UBS, are also watching whether the guidance changes.
Market observers will also focus on Wednesday's discussion points from the Treasury Borrowing Advisory Committee (TBAC). The committee is made up of investors, dealers and other market participants and meets with senior Treasury officials. Its feedback on whether the market can continue to absorb an expanding volume of Treasury bill issuance may be especially noteworthy.
As federal borrowing continues to rise while medium- and long-term Treasury issuance does not grow to help meet financing needs, the share of Treasury bills in outstanding debt has steadily climbed, reaching about 22% as of September. That is above the long-term average of 20% recommended by TBAC in 2024.
The JPMorgan team argued that given the enormous borrowing needs in coming years and early signs that demand for Treasury bills is stalling, cutting long-term Treasury issuance would not be prudent. At the same time, Treasury officials have claimed that stablecoins will become a new source of demand for Treasury bills, but bill purchases generated by stablecoins have so far not reached scale.
New Treasury buyback guidance may also be announced on Wednesday. Officials have already tripled the size of individual buybacks in the 10-year to 30-year maturity range to $6 billion. Most investors expect officials to maintain that size going forward while keeping the option to adjust. Goldman Sachs Group strategists led by William Marshall wrote in a report that explicitly listing buybacks as "one of the tools for managing the maturity structure of outstanding debt" could strengthen their impact on the market. They wrote that the thinking behind this may be that "it would pave the way for the Treasury to become less price-sensitive in its operations."
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