The U.S. Treasury Department on Wednesday said it will slow the pace of increases in its longer-dated 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.
Treasury yields fell after the announcement on relief the increases were not as large as some had feared. It comes after the U.S. government on Monday cut its borrowing estimate for the quarter to $776 billion, $76 billion less than its forecast in July.
"There was discussion that the refunding itself would be substantially larger than we had anticipated. We just don’t see that," said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA in 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," he added.
In July, the U.S. government said it expected to borrow $1.007 trillion in the July-September quarter, $274 billion more than it had predicted in May, sparking a large bond sell-of.
The Treasury said on Wednesday it plans to increase the size of its two-year and five-year note auctions by $3 billion per month, and to increase the size of its 3-year and 7-year note auctions by $2 billion and $1 billion per month, respectively.
It will increase the size of its 10-year new issue and reopenings by $2 billion, down from $3 billion at the last refunding, and raise its $30-year bond new issue and reopenings by $1 billion, down from the prior increase of $2 billion. The 20-year bond auction sizes will remain unchanged.
The Treasury plans to sell $112 billion in its quarterly refunding next week, which will raise $9.8 billion in new cash and refund $102.2 billion in securities. This will include $48 billion in three-year notes, $40 billion in 10-year notes and $24 billion in 30-year bonds.
The government will also increase the size of its two-year floating rate note new issue and reopenings by $2 billion.
Some Treasury Inflation-Protected Securities (TIPS) auction sizes will also be increased, with a $1 billion increase in the December 5-year TIPS auction and January 10-year TIPS auction.
The Treasury also said it expects to implement "modest reductions" to short-dated bill auctions by early December, which are expected to be maintained through mid- to late-January. The bill auctions will be held at current levels through late in November.
It is also considering changing its regular 6-week cash management bill to a benchmark, and will announce this decision at the next refunding. The Treasury added that it continues to make "significant progress" on its plans to launch a regular buyback program in 2024.
