The refunding: As part of its regular quarterly refunding, Treasury announced it would sell $126 billion in notes and bonds next week.

The department will issue $58 billion of 3-year Treasury notes

on Aug. 10, $41 billion of 10-year notes

on Aug. 11, and $27 billion of 30-year bonds

on Aug. 12.

The offerings will refund about $58.6 billion of Treasury notes and bonds maturing on Aug. 15, and will raise $67.4 billion of new cash.

What happened: In a statement, Treasury said it anticipates no changes to the sizes of nominal coupon and floating-rate note auctions over the August to October quarter. However, the department said it will continue to monitor the fiscal outlook, while considering potential ways to reduce auction sizes in a way that aligns with its borrowing and liquidity needs. Treasury said it will also address any seasonal or unexpected variations in borrowing needs through changes in regular bill auction sizes and/or cash-management bills.

Big picture: The Treasury kept the size of its nominal bond and note auctions steady, but said it expects an initial set of auction size reductions as soon as the next refunding announcement in November.

In considering the path of auctions going forward, members of the Treasury Borrowing Advisory Committee, which includes major dealers, “unanimously favored proportionately larger declines in 7-year and 20-year securities,” according to TBAC’s report to Treasury Secretary Janet Yellen.

Treasury “is continuing to gather information about the fiscal outlook,” as well as supply-and-demand dynamics from market participants, to determine how it might be appropriate to reduce auction sizes, Deputy Assistant Secretary for Federal Finance Brian Smith said in a press conference with reporters.

Many economists had expected the reductions would be delayed until later this year due to uncertainty over when the debt ceiling will be raised or re-suspended.

Treasury is also facing uncertain fiscal projections from the talks over infrastructure legislation currently being debated in Congress.

Increase in inflation-indexed securities:  Treasury said it will gradually increase the size of the TIPS auction sizes by $1 billion each in the August, September and October sales. Treasury has been increasing TIPS auction sizes all year. The department said it expects total gross TIPS issuance to increase by $15 to $20 billion in 2021.

Secured Overnight Financing Rate indexed floating-rate note: Treasury said it has completed an internal review of a SOFR-Indexed FRN and will consider whether it is necessary to meet its borrowing needs.

Bill issuance: The amount of net new cash being raised from coupon issuance will allow the department to continue gradual reductions of bill issuance as a percent of Treasury debt outstanding, Treasury said.

Market reaction: The yield on the 10-year Treasury note has fallen to 1.192% early Wednesday from roughly 1.431% about a month ago.

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