The U.S. Treasury Department announced its quarterly refunding statement on Wednesday, deciding to maintain the current issuance sizes for medium and long-term bonds, thereby continuing its "regular and predictable" debt management principle. This quarter, it will issue a total of $125 billion in bonds, comprising $58 billion in 3-year notes, $42 billion in 10-year notes, and $25 billion in 30-year bonds. The statement dispelled market speculation that the government might adjust the issuance structure to lower long-term borrowing costs. Concurrently, the Treasury is closely monitoring the Federal Reserve's short-term Treasury purchase program and demand from the private sector, with future policy direction potentially influenced by the nomination of a new Fed Chair.
In its quarterly refunding statement released Wednesday, the U.S. Treasury Department opted to keep the existing issuance volumes for medium and long-term bonds unchanged, aligning with broad market expectations. This move quells prior market conjecture that it might alter the debt issuance structure to reduce long-term borrowing expenses.
The Treasury explicitly stated its plan to keep auction sizes for coupon-bearing securities and floating-rate notes stable for "at least the next several quarters," a forward guidance practice maintained for two years. The total refunding amount for this quarter is $125 billion, with the specific breakdown as follows:
$58 billion in 3-year notes to be issued on February 10th $42 billion in 10-year notes to be issued on February 11th $25 billion in 30-year bonds to be issued on February 12th
The statement noted that the Treasury is attentively observing the Federal Reserve's monthly short-term Treasury purchase program, which began last December and runs through April of this year with a scale of $40 billion, aimed at maintaining ample reserves in the banking system, alongside growing private sector demand for short-term Treasuries. This decision continues its long-standing adherence to a "regular and predictable" debt management principle. Although the new administration focuses on reducing financing costs, any move to curtail issuance could conflict with this core commitment.
The issuance strategy remains stable. The Treasury reiterated in the statement that it is still evaluating the possibility of future increases in auction sizes for coupon-bearing securities and floating-rate notes and will "focus on structural demand trends, as well as the potential costs and risks of various issuance methods."
Prior to the statement's release, Goldman Sachs strategists William Marshall and Bill Zu analyzed, "Although the current administration's emphasis on measures to lower financing costs has reignited market questions about whether this goal would be pursued through more aggressive adjustments to the issuance mix, we expect the Treasury will not take such action at this time."
John Canavan, Chief Analyst at Oxford Economics, commented, "The statement itself sends a very steady signal; the Treasury has again made clear that auction sizes for coupon-bearing securities and floating-rate notes will remain unchanged 'for at least the next several quarters'."
A team of strategists at Morgan Stanley pointed out in their refunding preview report that the Federal Reserve's purchase program reduces the risk of the Treasury "over-supplying" short-term Treasuries to the market beyond the private sector's absorption capacity.
However, the report also cautioned that the path for the Fed's asset purchases beyond April remains unclear, particularly against the backdrop of Kevin Warsh's nomination as the next Federal Reserve Chair. Warsh's past public stances have leaned towards reducing the size of the Fed's securities portfolio, which could introduce uncertainty into future policy directions.
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