By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -The U.S. Treasury Department said on Wednesday it does not anticipate increasing auction sizes for notes and bonds for at least the next several quarters, in line with market expectations, as it announced a $125 billion refunding from November 2024 to January 2025.
The department will refund about $116.4 billion of privately held Treasury notes and bonds maturing on Nov. 15 to raise new cash of $8.6 billion from private investors.
The Treasury will sell $58 billion in U.S. three-year notes, $42 billion in 10-year notes, and $25 billion in 30-year bonds next week. These were the same auction sizes for the same securities announced at the July refunding.
"The refunding was pretty much close to our expectations. There could have been a small tweak to the guidance because 'at least for the next several quarters' is quite open to interpretation," said Angelo Manolatos, a macro strategist at Wells Fargo Securities.
"To us, we think that the Treasury is well-funded to meet its borrowing needs and current auction sizes are sufficient until November 2025, a time when we think the Treasury can increase them."
The U.S. Treasury said on Monday it plans to borrow $546 billion in the fourth quarter, $19 billion less than the July estimate, and another $823 billion in the first quarter of 2025. It assumes an end-December cash balance of $700 billion and an end-March cash balance of $850 billion.
Treasury Assistant Secretary for Financial Markets Joshua Frost, in a briefing following the refunding statement, said the borrowing plans for the quarter assume that Congress approves a "timely" increase or suspension in the debt ceiling. The current extension, approved in June 2023, expires on Dec. 31.
Members of the Treasury Borrowing Advisory Committee (TBAC), who met with the U.S. Treasury before the refunding announcement, expressed concern about the borrowings for 2025 and 2026. Minutes of the meeting showed that primary dealer estimates for the next two fiscal years were marginally higher than the previous forecasts.
The Treasury said on Wednesday it believes current auction sizes leave it "well-positioned" to address potential changes to the fiscal outlook and to the pace and duration of future redemptions in the Federal Reserve System Open Market Account (SOMA).
The account is managed by the U.S. central bank and contains assets acquired through operations in the open market.
The Treasury said it intends to address potential changes to the fiscal outlook in borrowing needs over the next quarter through changes in regular bill auction sizes and cash management bills.
TIPS AUCTION SIZES TO INCREASE
Auction sizes will moderately increase for Treasury Inflation-Protected Securities, the Treasury said.
"Given the intermediate- to long-term borrowing outlook and the structural balance of supply and demand for TIPS, Treasury believes it would be prudent to continue with incremental increases to TIPS auction sizes in order to maintain a stable share of TIPS as a percentage of total marketable debt outstanding."
The Treasury plans to maintain the November 10-year TIPS reopening auction size at $17 billion, increase the December five-year TIPS reopening auction size by $1 billion to $22 billion, and raise the January 10-year TIPS new issue auction size by $1 billion to $20 billion.
This was the overwhelming recommendation of primary dealers, the TBAC minutes showed. While demand for TIPS, especially from retail investors, had weakened as inflation has cooled, almost all dealers felt the market could absorb additional supply, the minutes added.
As for Treasury bills, the plan is to maintain the offering sizes through November. But in late-November, the Treasury anticipates issuing one or two cash management bills to address cash needs at that time.
Given estimates for receipts associated with the mid-month corporate tax date, the Treasury expects to moderately reduce short-dated bill auction sizes during the month of December. But in January it anticipates lifting bill auction sizes based on expected fiscal outflows.
The Treasury also gave an update on buybacks, saying it plans to conduct weekly liquidity support buybacks of up to $4 billion per operation in nominal coupon securities. In longer-maturity debt, Treasury will undertake two operations, each up to $2 billion, over the refunding quarter.
The department further said it expects to buy up to $30 billion in off-the-run or older securities across the curve for liquidity support over the course of the upcoming quarter, and up to $22.5 billion in the one-month to two-year debt for cash management purposes.