US Treasury Maintains Debt Sales Steady For Several Quarters

Debt Sources and Uses Estimates

The US Treasury has released its debt sources and uses estimates for the upcoming quarter. It anticipates a slight decrease in Q4, counterbalanced by a surge in borrowing in Q1 2025. The Treasury expects to issue $823 billion in debt, a significant increase from $546 billion in Q4, marking a record nominal amount for the quarter.

Quarterly Refunding Announcement

The Treasury has also issued its latest Quarterly Refunding Announcement, which was relatively subdued compared to previous ones. It confirmed that its quarterly auctions of longer-term debt would remain unchanged, as anticipated. The Treasury also reiterated that it does not expect to increase sizes for at least the next several quarters.

Securities Sale

The Treasury plans to sell $125 billion of securities at the upcoming quarterly refunding auctions, which aligns with expectations. The gross issuance will refund approximately $116.4 billion of treasuries and raise new cash from private investors of around $8.6 billion. The securities include a 3-year note of $58 billion, a 10-year note of $42 billion, and a 30-year bond of $25 billion.

Treasury Inflation Protected Securities

The Treasury has made some modest increases to Treasury Inflation Protected Securities (TIPS) as it aims to maintain a stable share of these securities relative to the overall debt outstanding. It has increased the auction sizes of two TIPS issues: December’s 5-year re-opening and the new 10-year issue, which was slightly more than expected.

Future Borrowing Needs

The Treasury does not anticipate needing to increase nominal coupon or FRN auction sizes for at least the next several quarters. However, it expects to maintain the offering sizes of benchmark bills through November and anticipates issuing one or two CMBs to meet its cash management needs at that time. The Treasury then plans to implement modest reductions to short-dated bill auction sizes in December, before increasing them again in January 2025.

Concerns About Debt

Given the significant increase in total US debt and the continuous increase in US borrowing, some bond strategists have warned that the Treasury might need to revise its guidance on holding auction sizes steady. Recent auctions have sparked concerns about the size of issuance, with the latest monthly auctions of 2- and 5-year securities drawing higher-than-anticipated yields.

Debt Management Strategy

Depending on the outcome of the upcoming presidential election, there will likely be changes in US debt management strategy. Regardless of the winner, they will have to operate under the constraint of the federal debt limit, which is set to kick back in at the start of January. Until Congress re-suspends or boosts the ceiling, the Treasury will have to rely on a series of extraordinary measures to meet its spending obligations.

Treasury Borrowing Advisory Committee Statement

The Treasury Borrowing Advisory Committee has emphasized the risk that debt limit constraints could hamper the efficient funding of the government. The committee warned that a lack of resolution of the debt limit could undermine the foundation of the US Treasury market and cause significant economic uncertainty.

Federal Reserve’s Runoff of Treasuries

The Federal Reserve currently lets up to $25 billion mature a month without replacement, forcing the Treasury to sell more to the public. However, with the repo market already on edge, there are concerns that continued drains of systematic liquidity could lead to another repo market crisis.

Bottom Line

The US Treasury's decision to keep debt sales steady for several quarters is a significant move, considering the massive increase in total US debt and the continuous increase in US borrowing. This decision, however, has sparked concerns among bond strategists and has drawn higher-than-anticipated yields in recent auctions. As we move forward, it will be interesting to see how these decisions impact the US economy and the global financial market. What are your thoughts on this matter? Feel free to share this article with your friends and discuss it. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.