When the U.S. Treasury publishes its financing plans this week to pay an escalating budget deficit, economists predicted that it will increase the size of auctions for bills, notes, and bonds in the fourth quarter.
Increase In Treasury Yields
Concerns about the U.S. fiscal imbalance have contributed to a dramatic increase in long-term Treasury yields, so investors will be closely watching this week’s quarterly refunding statement. The 10-year yield has increased by more than 100 basis points since the end of July.
“The increase in Treasury yields has been linked by the market to concerns regarding the deficit and the sustainability of those deficits,” stated Guneet Dhingra, managing director and head of Morgan’s U.S. rates strategy.
The disclosure of the projected borrowing amounts for the first and fourth quarters of 2024 on Monday will also be closely watched. The bond market was rattled on July 31 by the disclosure of $1.007 trillion in funding requirements for the third quarter, which resulted in a substantial rise in auction volumes.
On Monday at 3 p.m. ET (1900 GMT), the Treasury will reveal its quarterly borrowing requirements; on Wednesday, at 8:30 a.m. ET (1230 GMT), it will release news about refunds.
Increase In Bond Market Liquidity
Analysts predicted that the Treasury would also declare a buyback program, maybe starting in January, with the goal of increasing bond market liquidity. It halted its regular buyback program in April 2002, having last done so in the early 2000s.
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According to economists, the most recent refunding may cause the Treasury to skew its issuance toward shorter-term notes, while the growth at the long end may decrease because of worries about how more supply might affect long-term yields.
That would be different from the August refunding, when the Treasury mostly relied on the sale of short-term bills to increase its cash holdings and finance its mounting deficit amid the debt ceiling suspension in June. Instead, it aggressively increased the auction sizes for notes and bonds, which have longer maturities.
A relatively elevated T-bill percentage should be supported for some time by the current market climate, according to Tom Simons, U.S. economist at Jefferies in New York, because there is still a good appetite for shorter-term investments.
But experts predicted that Treasury will continue to expand auction sizes due to the anticipated rise in longer-term deficits in the upcoming years.
