Treasury is set this week to begin a ramp-up in issuance of longer-dated securities that's likely to stretch into next year, forced by a rapidly deteriorating budget deficit and soaring interest rates. For the first time since early 2021, the Treasury will boost its so-called quarterly refunding of longer-term Treasuries, to $102 billion from $96 billion, the consensus among dealers suggests. While down from the record levels hit during the Covid-19 crisis, that's well above pre-pandemic levels.
Wednesday's announcement will likely also see debt managers hoist regular auction sizes for securities across the yield curve — with potential exceptions or smaller bumps for notes less in demand. Dealers will be on watch separately for an update on a coming program to buy back older Treasuries. Public borrowing needs are on the rise thanks in part to Federal Reserve rate hikes that have taken its policy benchmark to a 22-year high — in turn driving up yields on government debt, making it more costly.
The Fed is also shrinking its holdings of Treasuries, obligating bigger government sales of them to other buyers. It all raises the risk of bigger volatility swings when the government auctions its securities. «There's just a lot of supply coming,» said Mark Cabana, head of US interest-rate strategy at Bank of America Corp.
«We've been surprised by the deficit numbers, which are sobering.» Larger amounts of debt issuance haven't translated directly into lower prices and higher yields, as the swelling in US debt alongside historically low yields attests over the past two decades. But bigger auction sizes contribute to the potential for short-term volatility, at a time when banks have diminished appetites for market making. That was
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