The U.S. Treasury announced its refunding auction plans for November through January Wednesday morning which drew much attention given the market’s reaction to the last announcement and the high yields since. The Treasury announced that $112 billion in 3-, 10-, and 30-yr notes and bonds will be sold next week, aiming to raise $9.8 billion of new cash from private investors. The bond market reacted positively to issuance less than feared at the long end and some clarity that the Treasury only plans to increase auction sizes one more time. Longer-dated U.S. Treasuries rose off lows in immediate reaction to the announcement.
The Treasury said it will maintain current auction sizes into late November, but plans to reduce short-dated bill auction sizes by early December, maintaining the reductions into the second half of January. The Treasury also said that it will continue gradually increasing auction sizes to match higher borrowing needs and that one additional quarter of size increases will likely be needed in addition to what was announced today. The reintroduction of term premium into the long-end of the curve should cause Treasury secretary Yellen to pause in being too aggressive with long-end issuance increases.
The Auction Refunding for November through January
- 2 year auctions increase $3 billion/month
- 3 year auctions increase $2 billion/month
- 5 year auctions increase $3 billion/month
- 10 year auctions increase $2 billion/month
- 30 year auctions increase $1 billion/month
- Total coupon sizes at $112 billion vs $114 billion expected (up $9b q/q)
- The Treasury said it expects one additional quarter of increased auction sizes beyond what’s announced today.
Current portion of bills at 20.4%
Yields after announcement:
- 2-yr: -3 bps to 5.05%
- 3-yr: -1 bp to 4.89%
- 5-yr: -1 bp to 4.80%
- 10-yr: UNCH at 4.87%
- 30-yr: +1 bp to 5.03%
Yields before announcement:
- 2-yr: +3 bps to 5.08%
- 3-yr: +3 bps to 4.90%
- 5-yr: +1 bp to 4.82%
- 10-yr: UNCH at 4.88%
- 30-yr: -1 bp to 5.02%
Consensus for next refunding
- 2 year auctions expected to increase $3 billion/month
- 3 year auctions expected to increase $2 billion/month
- 5 year auctions expected to increase $3 billion/month
- 10 year auctions expected to increase $3 billion/month
- 30 year auctions expected to increase $2 billion/month
Goldman Sachs forecast
- 2 year auctions expected to increase $2 billion/month
- 3 year auctions expected to increase $2 billion/month
- 5 year auctions expected to increase $2 billion/month
- 10 year auctions expected to increase $1 billion/month
- 30 year auctions expected to increase $1 billion/month
Source: US Treasury. Goldman Sachs
From The TradersCommunity Fixed Interest Desk