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U.S. Treasury Plans to Increase Bond Auction Sizes

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The U.S. Treasury Department has announced its plans to sell $121 billion in notes and bonds, an increase from the $112 billion sold in the previous quarter.

Auction Details

The upcoming auctions will include:

  • $54 billion of 3-year Treasury notes (BX:TMUBMUSD03Y) on Feb. 6
  • $42 billion of 10-year notes (BX:TMUBMUSD10Y) on Feb. 7
  • $25 billion of 30-year bonds (BX:TMUBMUSD30Y) on Feb. 8.

Gradual Increase

The Treasury plans to gradually increase coupon auction sizes through April. These increases will be similar to those implemented in November, according to a Treasury official. It was previously indicated that auction sizes would likely see an increase this quarter.

Looking ahead, the Treasury does not expect any further increases in auction sizes for at least the next several quarters.

Key Details

Overall, the Treasury aims to increase the auction sizes of:

  • 2-year and 5-year Treasury notes by $3 billion per month
  • 3-year Treasury notes by $2 billion per month
  • 7-year Treasury notes by $1 billion per month

In addition, the plans include increasing both the new issue and reopening auction sizes of the 10-year Treasury note by $2 billion and the 30-year bond by $1 billion.

The department also intends to increase the February and March reopening auction size of the 2-year Floating Rate Note by $2 billion, along with an April new issue auction size increase of $2 billion.

The Big Picture

Amid these developments, concerns have been raised by experts regarding the U.S. budget deficit. Former U.S. Treasury Secretary Robert Rubin described it as being in a “terrible place.”

To address its fiscal needs, the Treasury had to borrow nearly $2.7 trillion in the last fiscal year, which concluded on Sept. 30.

The Rising U.S. Borrowing and Its Potential Consequences

According to Stephen Stanley, the chief U.S. economist at Santander, the borrowing rate is expected to reach nearly $3 trillion this fiscal year and remain above $2.5 trillion in fiscal year 2026. If bond markets start to worry about the unsustainable fiscal track, which was a major concern in the second half of last year, it could force the federal government to address the increasingly alarming fiscal outlook. Stanley predicts that the winner of November’s election may be compelled to propose deficit reduction legislation in 2025.

Treasury Buybacks

The Treasury has announced its intentions to conduct regular buyback operations, with the date set to be announced during the May refunding. Additionally, some tests will be conducted in April to further streamline this process.

Bill Issuance

The Treasury plans to maintain bill auction sizes at current levels until late March. As a result, there will likely be a net increase of $300-$350 billion in privately held supply over the next two months. However, by late March or early April, the department anticipates modestly reducing short-dated bill auction sizes in preparation for tax season. This reduction is expected to result in a net decrease of $100-$150 billion in privately held supply during April.

TIPS Financing

The Treasury has outlined plans for small increases in TIPS auction sizes. In March, the 10-year TIPS reopening auction size will be increased by $1 billion to $16 billion. Additionally, in April, the 5-year TIPS new issue auction will be increased by $1 billion to $23 billion.

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