Treasury Increases Auction Sizes To Fund Soaring Deficit; Launches 2-Month Bill

While traditionally a snoozer, this morning’s Treasury’s refunding announcement was closely watched for details on how the US Treasury’s plans to fund its soaring budget deficit in the coming quarters, shortly after it announced it had sold a near record $488BN in debt in the last quarter. Specifically, bond traders were looking at how much upcoming auctions would increase by, and whether the Treasury would also introduce a 2 Month bill auction as some strategists had expected.

Well, the Treasury did all that and more, revealing that it would sell $31BN in 3Y notes on May 8, a $5BN increase vs the $26BN sold last quarter; additionally, the 10Y refunding auction on May 9 will also increase by $1BN to $25BN vs $24BN last quarter, and a similar increase for the 30Y auction, which would increase to $17BN on May 10 vs $16BN last quarter.

That was just the beginning: among the other debt-busting details revealed today were the following

  • Treasury to introduce two-month bill later this year
  • Keeps TIPs auctions unchanged, evaluates new five- year TIPs sale
  • 2-, 3-year note auctions to rise by $1 bln per month
  • Boosts 5-, 7-, 10-, 30-year debt auctions by $1b
  • Floating-rate note auctions boosted by $1 bln

In total, these adjustments will result in an additional $27 billion of new issuance for the upcoming quarter.  The good news for bond bulls is that the nominal coupon and FRN auction size increases are smaller than the total increases of $42 billion announced in January 2018 for the months of February through April 2018.

Some more details on rising auctions:

Based on our current forecast, Treasury is announcing additional modest increases to nominal coupon and FRN auction sizes over the upcoming quarter.  Over the next three months, Treasury anticipates increasing the sizes of the 2- and 3-year note auctions by $1 billion per month.  As a result, the size of 2- and 3-year note auctions will each increase by $3 billion by the end of July.  In addition, Treasury will increase the auction size of the next 2-year FRN auction by $1 billion in May.  Finally, Treasury will increase auction sizes by $1 billion for each of the next 5-, 7-, and 10-year notes and the 30-year bond auctions in May.  All changes are applicable to subsequent new issues and reopenings.

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