US Treasury keeps notes, bonds auction sizes steady, increases debt buybacks

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4 days ago

By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -The U.S. Treasury Department said on Wednesday it does not anticipate increasing auction sizes for notes and bonds for at least the next several quarters, in line with market expectations, as it announced a $125 billion refunding from August to October 2025.
It will, however, continue to make incremental increases to the size of Treasury Inflation-Protected Securities (TIPS) and T-bill auctions.
"We use T-bills as a shock absorber for unexpected, seasonal or short term variations in borrowing needs as part of our regular and predictable issuance plan," a senior Treasury official said in a call with reporters on Wednesday.
"That's because we believe ... changes in borrowing needs and addressing them in the people market is the most effective way to borrow at the least cost over time because of the ability of that market to absorb those kind of short-term changes. We think that the level of bill issuance offered today is very consistent with those plans and has helped us in light of the changes."
In a statement, department will further sell $58 billion in U.S. three-year notes, $42 billion in 10-year notes, and $25 billion in 30-year bonds next week. These were the same auction sizes for the same securities announced at the February refunding.
The Treasury also announced it will double the frequency of long-end nominal buybacks and increase the size of cash management buybacks, all aimed at improving liquidity in the market. The changes to the buybacks will take effect on August 13.
"The Treasury will be focusing more on bill supply and they are trying to help market liquidity by increasing the sizes and frequency of buybacks, especially in the long end of the curve," said Gennadiy Goldberg, head of U.S. rates strategy, at TD Securities in New York. "So net net, this should be slightly positive for the long end."
Long-dated Treasuries briefly rallied after the refunding announcement, pushing their yields lower. But their yields were last higher on the day as the initial impact from the refunding was muddied by the strong U.S. gross domestic product number.
U.S. 10-year yields were last up 4.4 basis points at 4.372%.
The Treasury announced that it's increasing the frequency of liquidity support buybacks in both the 10- to 20-year and 20- to 30-year nominal buckets to four times per quarter from two currently. But it will keep the current $2 billion maximum purchase per operation in both sectors.
With respect to the other nominal coupon pairs, the department will continue to conduct one liquidity support operation per quarter for up to $4 billion.
All told, the changes will lift total size of liquidity support buybacks from a maximum par amount of $30 billion per quarter to $38 billion.
CASH MANAGEMENT BUYBACKS
The Treasury is also increasing the size of cash management buybacks from a maximum $120 billion per year to $150 billion. For this quarter, however, it does not expect conducting cash management buybacks around the September tax date due to the ongoing rebuilding of the Treasury's cash balance.
Cash management buybacks will resume in December, the Treasury said.
Overall, the Treasury's financing plan will refund about $89.8 billion of privately-held Treasury notes and bonds maturing on August 15 and raise new cash of $35.2 billion from private investors.
The Treasury also stressed the focus on T-bill issuance this quarter. It expects further marginal increases in T-bill auction sizes in coming days and then maintaining sizes at or near those levels through the end of September. It added that further increases in T-bill auction sizes are anticipated in October.
"This guidance (on T-bill issuance) will continue to be the focal point of future refunding announcements," wrote Tom Simons, chief economist at Jefferies in a research note.
"(Treasury) Secretary (Scott) Bessent has made it clear that he is carefully considering the best strategy and timing for terming out the debt versus continuing to lean on the front-end. At some point, perhaps after a few Fed (Federal Reserve) rate cuts, issuance of more coupons will be more attractive."
Median forecasts from primary dealers estimated that Treasury could increase bill supply by $260 billion over a month and by $600 billion over a quarter without causing significant price deviations in bills relative to fair value, according to minutes of the meeting on Tuesday of the Treasury Borrowing Advisory Committee released on Wednesday.
With respect to TIPS, Treasury plans to maintain the 30-year TIPS reopening auction size at $8 billion for August, increase the 10-year TIPS reopening auction size to $19 billion in September, and increase the October 5-year TIPS new issue auction size to $26 billion.