US Treasury Maintains Debt Issuance Guidance Amidst Criticism
The US Treasury announced on Wednesday its decision to uphold its guidance on maintaining sales of long-term debt unchanged through 2025. This decision comes despite criticism from newly appointed Secretary Scott Bessent, who had previously expressed concerns about the issuance strategy of his predecessor, Janet Yellen.
Continuing Yellen's agenda, the Treasury will offer $125 billion in debt in its quarterly refunding auctions next week, spanning maturities of 3, 10, and 30 years. The amount remains consistent with recent quarters.
"Based on current projected borrowing needs, Treasury anticipates maintaining nominal coupon and FRN auction sizes for at least the next several quarters," the Treasury stated.
This guidance has remained unchanged since the previous increase in auction sizes last year. Bessent, a former hedge fund manager, had accused Yellen of suppressing long-term debt sales to lower borrowing costs and support the economy before the election.
Despite the Treasury Borrowing Advisory Committee (TBAC) encouraging the Treasury to remove or modify the forward guidance, the department made its own decision to keep it in place.
Dealers widely expected stable auction sizes next week. However, they anticipate increased sales of longer maturities eventually due to projected US fiscal deficits. Some predicted this increase in November or as early as August, while Morgan Stanley strategists did not expect it until next year.
Next week's auctions will consist of:
* $58 billion of 3-year notes on February 11
* $42 billion of 10-year notes on February 12
* $25 billion of 30-year bonds on February 13
The refunding will generate approximately $18.8 billion in new cash. The Treasury also announced it would maintain floating-rate debt issuance and gradually increase sales of Treasury Inflation Protected Securities (TIPS).
The department emphasized that its extraordinary measures to manage the debt ceiling would lead to variability in benchmark bill issuance and significant cash management bill usage.
Regarding TIPS, the Treasury outlined the following adjustments for February-April:
* Increase the April 5-year TIPS new issue to $25 billion
* Boost the March 10-year TIPS reopening by $1 billion to $18 billion
* Maintain the February 30-year TIPS new issue auction size at $9 billion
The Treasury's debt sales could be further impacted by the Federal Reserve's quantitative tightening (QT) reduction. TBAC believes QT will end in summer rather than spring, which would slightly increase the Treasury's borrowing needs from the private sector in 2025.