US Treasury refunding set to offer relief from supply rises

NEW YORK – The US Treasury Department is expected to offer markets some relief next week when it details refunding plans for the coming quarter, by keeping the size of most of its auctions steady after three quarters of increases.

Investors will focus on an expected debt repurchase program and whether it offers any insights into longer-term financing plans as concerns mount over rapidly rising US debt.

While the Treasury may increase the size of some issues, including the 10-year Treasury Inflation-Protected Securities (TIPS), most auctions are expected to be unchanged.

The pause in auction size increases would likely be positive for investors after larger-than-expected debt needs last year sent bond yields higher and rattled stock markets.

“It shouldn’t be as big of an event risk as it was the past couple of quarters,” said Vail Hartman, US rates strategist at BMO Capital Markets in New York.

The Treasury will give its financing estimate for the coming two quarters on Monday and more detailed plans on Wednesday.

Near-term financing needs are improving due to stronger tax receipts and a less bad than previously expected deficit. At the same time, the Federal Reserve is expected to taper its quantitative tightening program, in which it lets bonds roll off its balance sheet without replacement.

That will also reduce the Treasury’s need to raise cash via Treasury bills, with the issuance of short-term debt in the last nine months of 2024 likely to be net negative, said Angelo Manolatos, macro strategist at Wells Fargo in New York.

A bigger focus will be on the likely launch of a buyback program, in which the Treasury will repurchase bonds for cash management purposes or to support liquidity.

“We think that the buybacks are going to be unveiled next week and we’ll get that first actual schedule,” said Manolatos.

For cash management purposes, the Treasury is likely to buy back shorter-dated debt mainly around major tax payment dates.

For liquidity, it will focus on buying back off-the-run securities, older and less liquid issues trading at a discount.

The US government may give more details on how the program would work, including on selecting issues to repurchase.

Meanwhile, any comments on the Treasury’s longer-term financing plans would be a focus as the rapidly rising US debt gains more attention.

“There are very large upside risks to the deficit in coming years … that’s the important issue for them to address, I just don’t know if necessarily they are going to be addressing them in great detail here because there’s an election looming,” said Gennadiy Goldberg, head of US rates strategy at TD Securities in New York.

TD sees a “significant risk” that the Treasury will need to resume auction size increases next year.

(Reporting by Karen Brettell; Editing by Alden Bentley and Alexander Smith)