Treasury Department to Provide Update on Debt Issuance Plans on November 1
Investors are eagerly awaiting the Treasury Department’s upcoming quarterly refunding statement, as concerns over US debt continue to grow. The statement, set to be released on November 1, will outline the department’s bond issuance plans for the next three months. Previous reports that indicated possible upward revisions have raised worries about the market’s willingness to absorb additional Treasurys, leading to higher yields and even a historic price collapse.
Given this backdrop, the upcoming release of the refunding statement has captured significant market attention. Recent weeks have shown signs of weakness in investor demand for Treasurys, coinciding with the government’s increasing deficits and the subsequent flood of debt in the market. In fact, the Treasury Department has already hinted at the need for further increases in bond supply, particularly for longer-dated bonds. Josh Frost, the assistant Treasury secretary for financial markets, emphasized this point in September, stating that “further gradual increases in coupon auction sizes will likely be necessary in future quarters.”
This view is shared by Wall Street, with institutions revising their expectations for the size of US debt issuance. Bank of America, for instance, has raised its deficit projections for the coming years, forecasting that US overspending will rise to $2 trillion by fiscal year 2026, up from $1.7 trillion in 2023. Higher interest expenses on US borrowing are expected to be a significant driver of this increase, necessitating the continued issuance of more bonds by the Treasury.
In line with these projections, Bank of America anticipates larger auction sizes in November, followed by moderate expansions over the next six months. Assuming the Federal Reserve’s quantitative tightening ends in June 2024, analysts estimate that debt supply during 2024 could reach around $1.34 trillion in 10-year equivalents, $90 billion higher than previously forecasted.
JPMorgan also expects higher Treasury issuance in the future, highlighting that the fiscal 2023 deficit exceeded its earlier estimates by $100 billion. The bank predicts that the Fed’s quantitative tightening will continue through 2024, resulting in a $720 billion financing gap. Given the current auction sizes, JPMorgan foresees a repeat of the auction increase observed in August.
Nevertheless, Morgan Stanley offers a slightly different perspective, suggesting that markets may be in for a surprise in November. The investment bank speculates that the Treasury might choose to increase coupon sizes at a slower pace than previously anticipated, favoring an increased share of T-bill issuance in the coming years.
Amidst the anticipation of the Treasury Department’s refunding statement, investors and market participants are closely monitoring the implications of its debt issuance plans. The outcome of this update will undoubtedly have a significant impact on the bond market and the broader US economy.
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