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Wall Street bond dealers are anticipating another round of increases in the upcoming US Treasury note and bond auctions. However, there is a substantial minority of experts who predict that the Treasury will slow the pace of growth to prevent a sudden surge in yields. Against the backdrop of expanding US deficits, the Treasury is expected to announce details for auctions from November to January this week. The consensus projection for the next week’s quarterly refunding sales, which includes three-, 10-, and 30-year securities, is expected to reach $114 billion, up from $103 billion three months ago.
Among the 23 firms surveyed, nine of them anticipate smaller increases, with the lowest projection for next week’s sales being $108 billion. Many in this group believe that the surge in yields following the larger-than-expected August refunding announcement should encourage the Treasury to make smaller additions to note and bond supply. Instead, they suggest issuing more Treasury bills, which mature in a year or less and have strong demand.
Experts have pointed to the substantial rise in 10-year yields following the last refunding announcement, with some expressing concerns that Treasury officials would prefer lighter additions to note and bond supply to avoid a repeat of this scenario. Wells Fargo & Co. strategists also noted that the jump in 10-year yields likely wasn’t well received by the Treasury.
However, it’s worth mentioning that the Treasury announced a reduced projection for federal borrowing for this quarter on Monday due to better-than-expected revenue. Despite this, JPMorgan Chase & Co. has pointed out that it supports the need for increased coupon-auction sizes while noting that the bank had anticipated more Treasury-bill issuance.
Yields on the US 10-year note recently exceeded 5% for the first time since 2007, with investors preparing for additional issuance and the possibility that the Federal Reserve will maintain tight monetary policy for an extended period. On Tuesday, the maturity yielded approximately 4.8%.
For the upcoming sales, the consensus is for a $48 billion three-year offering, a $41 billion 10-year, and a $25 billion 30-year, totaling $114 billion. Estimates for this slate range from $108 billion to $116 billion.
The consensus view is that reducing note- and bond-auction growth would expose the Treasury to risks related to overreliance on bills, which already make up about 20% of the Treasury’s debt, reaching the upper end of the range recommended by industry advisers to the department. Additionally, the Federal Reserve’s quantitative tightening, which involves reducing its holdings of Treasuries, is adding to funding pressures.
Several firms, including Barclays Plc, Jefferies, Morgan Stanley, and Wells Fargo, are among those predicting a slowdown in the Treasury’s auction expansion.
In the case of the 10-year note, a majority of the 23 primary dealers that provided forecasts expect new-issue and reopening sizes to increase by $3 billion, which follows the pattern from the previous quarter. However, nine dealers forecast increases of no more than $2 billion, while one predicts a $1 billion increase.
Forecast for auctions of fixed-rate coupon-bearing notes and bonds in November, December, and January (in billions of dollars) with most recent sizes in parentheses: Two- to seven-year auctions are monthly new issues, while 10-, 20-, and 30-year entries are new issues with two reopenings.
