The U.S. Treasury will release its quarterly refunding statement this Wednesday, with Wall Street on high alert, anticipating the largest adjustment to Treasury issuance guidance since early 2024. Elevated long-end yields and a steadily swelling debt load have thrust the Treasury's issuance strategy choices squarely into the spotlight.
Treasury Secretary Scott Bessent's recent series of unconventional moves has already left the market highly tense. Just one week after the previous quarterly statement was released, Bessent unexpectedly expanded buybacks of outstanding bonds, a move widely interpreted as a direct response to surging yields. Meanwhile, in August the Treasury quietly adjusted its language, changing its description of future coupon bond sale size changes from "potential increase" to "potential change," a shift that has led observers to sense a precursor of policy turning.
If Wednesday's statement adjusts issuance guidance, it could pave the way for reducing ultra-long bond issuance in 2027, offsetting this with expanded short-term Treasury bill and intermediate-term note issuance. Currently, the U.S. 10-year Treasury yield is trading near 4.91% ahead of the statement, while the 30-year yield remains above 5.30%.
Citi: Ultra-Long Bond Reduction May "Arrive Early"
Most dealers expect the Treasury to send signals at the language level, but Citigroup's judgment is more aggressive. Citi predicts the Treasury will announce a direct reduction in 20-year and 30-year bond issuance starting this month 鈥?a move that would essentially contradict the issuance plan established in the previous quarterly refunding statement, with a magnitude and pace exceeding broad market expectations.
The relatively majority of Wall Street institutions expect substantive issuance adjustments to land no earlier than May next year, with this week's statement more likely focused on changes in guidance language. UBS Group U.S. rates strategy head Phoebe White said, "A guidance change is more likely than immediate action," but she also noted that the Treasury's recent "unconventional" behavior has indeed "raised the probability that Treasury actions will continue to deviate from historical precedent."
A Single Word's Difference, Worth a Fortune
In this week's statement, one of the most sensitive observation points for the market is the specific wording direction of "forward guidance." Since January 2024, the Treasury has consistently used some form of "maintaining stable issuance sizes for at least the next several quarters" language, a commitment that has served as an important anchor for market pricing over the past two-plus years.
Barclays team lead analyst Anshul Pradhan suggested officials should replace "at least the next several quarters" with "the next several quarters," a seemingly minor deletion that would give the Treasury greater flexibility in timing and structural choices for issuance. Bank of America, Goldman Sachs and UBS are all closely watching whether this wording changes.
In contrast, the team led by JPMorgan strategist Jay Barry believes the Treasury will extend the "next several quarters" language through 2027 and keep auction sizes unchanged until August next year, after which it would launch a round of issuance expansion focused on 2-year to 10-year notes. JPMorgan argues that given the massive borrowing needs in coming years, reducing long-bond issuance would not be prudent.
High T-Bill Share, Short-End Strain Concerns
Another constraint on the Treasury's issuance structure adjustment comes from the carrying pressure in the short-end market. As federal borrowing continues to climb and long-term coupon bond issuance has yet to follow through, Treasury bills' share of outstanding debt has steadily risen to about 22% by the end of September, above the 20% long-term average level recommended by the Treasury Borrowing Advisory Committee (TBAC) in 2024.
Under the pressure of rolling over maturing debt, the U.S. Treasury's weekly auction sizes now exceed $500 billion. Last week, officials completed a record $839 billion in auctions, which according to Bloomberg reports set a new all-time high. Once short-term financing becomes excessively concentrated, the Treasury will be more exposed to sudden swings in market sentiment. The JPMorgan team also noted that demand for Treasury bills has shown signs of softening, while the stablecoin buying that Treasury officials had high hopes for has yet to materialize at meaningful scale.
On Wednesday, the market will also focus on TBAC's assessment and feedback on the market's ability to continue absorbing larger-scale Treasury bill issuance, a discussion that will carry important reference value for the policy path.
From "Tactical Patch" to "Structural Arrangement"
Beyond issuance guidance, this week's statement may provide a new framework positioning for Treasury buyback operations. Officials have previously tripled buyback sizes for 10-year to 30-year bonds to $6 billion per operation, and most market participants now expect this pace to remain unchanged while retaining the option for flexible adjustment.
Insight Investment investment specialist head April LaRusse said bluntly, "The buyback sizes are too small to really move the needle," and noted that if the Treasury truly feels uncomfortable with yield levels, adjusting the issuance structure is its core tool.
The team led by Goldman Sachs strategist William Marshall proposed in a research note that if the Treasury could "clearly declare that buybacks are part of the policy toolkit for managing the duration structure of outstanding debt," it would help strengthen their market influence. Goldman believes such a statement could provide a basis for the Treasury to "reduce price sensitivity" in future operations, thereby allowing buybacks to gradually evolve from temporary market intervention measures into a systematic issuance management mechanism.
This Refunding Auction Plan
Regarding the quarterly refunding auctions corresponding to Wednesday's statement, if issuance sizes remain unchanged, the total will be $125 billion, with the specific arrangement as follows: $58 billion in 3-year notes on November 9, $42 billion in 10-year notes on November 10, and $25 billion in 30-year bonds on November 12. With the U.S. government's annual fiscal deficit remaining at around $2 trillion, the long-term expansion trajectory of debt scale means that regardless of what decision is made this week, issuance sizes will ultimately and inevitably trend upward.
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