Treasury Unveils Quarterly Refunding Plans, Initiates Buyback Program

Treasury Unveils Quarterly Refunding Plans, Initiates Buyback Program 

The Treasury recently shared its borrowing forecasts for Q2 and Q3, revealing plans to sell more debt than previously expected in Q2 but less than anticipated in Q3. This announcement coincided with the release of the Quarterly Refunding Announcement by Treasury Secretary Janet Yellen. As predicted, there were no surprises, with the issuance of longer-term debt remaining unchanged. The Treasury also announced the initiation of a program to buy back existing securities, a move not seen in over two decades. Additionally, it disclosed the conversion of 6-week cash management bills into regular benchmark bills.

In the upcoming quarterly refunding auctions, the Treasury plans to sell $125 billion of securities to refund $107.8 billion of Treasury notes maturing in May 2024. Notable changes include increases in auction sizes for 10-year and 30-year notes compared to the previous quarter. Despite some expectations, there will be no increase in nominal coupon or FRN auction sizes in the foreseeable future.

Regarding bill issuance, the Treasury intends to increase auction sizes for 4-, 6-, and 8-week bills to meet cash needs around the end of May. However, it plans to reduce short-dated bill auction sizes in anticipation of the June 15th tax date, with sizes expected to return to previous levels by July.

Two unexpected announcements were the introduction of the 6-week bill benchmark and the initiation of Treasury buybacks. The former aims to meet market demand for T-bills, while the latter aims to enhance market liquidity and cash management. The buyback program will initially operate weekly until July 2024.

In summary, today's Quarterly Refunding Announcement delivered no surprises regarding coupon size increases, and the launch of Treasury buybacks alleviates concerns about market liquidity. The Federal Reserve's expected announcement of tapering its asset run-off could further impact Treasury's debt-interest bill. Until then, yields are falling, driven by the dovish tone of the Quarterly Refunding Announcement.