The U.S. Treasury Department on Wednesday said it plans to “gradually” increase the size of most of its debt auctions in the November 2023 to January 2024 quarter and expects it will need one more additional quarter of increases after this to meet its financing needs.
MARKET REACTION: U.S. Treasury yields fell after the refunding announcement. The 10-year yield was recently around 4.79%
COMMENTS:
STEVE SOSNICK, CHIEF STRATEGIST, INTERACTIVE BROKERS, GREENWICH, CT
“We’re certainly seeing a well-deserved relief rally in bonds this morning. There were fears that the refunding would be more weighted to the long end of the curve than what was eventually announced. That is helpful for two reasons: first, because the concerns about excess supply had been weighing more on the long end; and second, because the long end is more volatile than the short end, good news has a bigger impact.”
“It is also reasonable to think that fixed income markets are thinner than normal ahead of today’s FOMC announcement, so good news might be getting rewarded a bit more than normal.”
TOM DI GALOMA, CO-HEAD OF GLOBAL RATES TRADING, BTIG, NEW YORK
“This will make it problematic for the primary dealers to find excess buyers. The last auctions that we saw were really quite well bid, but there seemed to be on average a smaller takedown by the primary dealers.”
“I think the refunding is a result of the higher deficit we’re seeing. It seems like the U.S. budget deficit continues to grow, and they need to finance that.”
STEVEN ZENG, US RATES STRATEGIST, DEUTSCHE BANK, NEW YORK
“We thought the Treasury would slow the pace of increases to the 10-year, 20-year and 30-year, and that’s what they delivered. The long-end rallied after refunding announcement … which is consistent with smaller increases than the market expected.”
“Most dealers expected a repeat of the increase from August, the Treasury delivered slightly less … and the market rallied slightly on the back of that. Definitely not a repeat of the panic after the August announcement.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, ELM GROVE, WISCONSIN
“It wasn’t as bad as feared. The guidance that there may be only one more quarter where it increases was somewhat comforting. Leave it to the Treasury to not refinance when yields were historically low and instead extend duration when yields are unusually high. The Treasury is a horrible trader.”
BRUCE CLARK, MACRO STRATEGIST, INFORMA GLOBAL MARKETS, NEW YORK
The Treasury has lowered its bond issuance in the long-end of the curve compared to August in an effort to calm the panic in bond markets. They lit a fire in the bond markets in August with the last refunding announcement and now they are attempting to put it out.
STUART COLE, CHIEF MACRO ECONOMIST, EQUITI CAPITAL, LONDON
“The $112 billion it has announced it will sell this quarter will raise some $9 billion in extra cash compared to the last quarter, which I guess is symptomatic of the fact that the US government’s fiscal deficit is growing ever larger.”
“I am a little surprised that the Treasury did not want to issue more longer dated stuff, given the growing fiscal deficit and the extra funding security such longer term borrowing provides. My hunch is that the already higher yields we are seeing in the longer dated section of the curve tied its hands a little.”
STEVEN RICCHIUTO, U.S. CHIEF ECONOMIST, MIZUHO SECURITIES USA LLC, NEW YORK
“The Treasury took a little bit of the borrowing out of the longer end and put it into the belly of the curve. There’s a lot of fear into how much additional increases you were going to get. There was discussion that the refunding itself would be substantially larger than we had anticipated. We just don’t see that. They would just have to expand the duration of the debt over time, it’s not like it has to be done ASAP.”
“I think the market got ahead of itself in terms of how big and how bad they thought the fancy numbers would be in terms of the actual projected issue sizes and the size for the refunding itself.”
ART HOGAN, CHIEF MARKET STRATEGIST AT B. RILEY WEALTH, NEW YORK
“The Treasury is going to auction 112 billion in debt next week and that starts Tuesday and works its way through the week and along the curve, but that is modestly above expectations coming into this.”
“The ongoing supply of treasury issuance likely puts upward pressure on yields and that presents a headwind for equity investors.”
