... But Increases May Be Imminent (2/3)

There is a reasonable chance that Treasury increases coupon sizes in the upcoming quarter, starting with the August refunding.

• Most expectations entering May’s refunding were that coupons would be upsized at either the August or November announcements, depending largely upon whether a debt ceiling deal were reached sooner rather than later in the summer.
• We've seen expectations that 2s/3s/5s/7s could be upsized $1-2B in the coming quarter, with longer-end tenors seeing the same/smaller (20Y seen as the most likely candidate to be upsized relatively less, or unchanged).
• Our current estimates for August pencil in TBAC's recommended financing which points to a $1-2B upsizing across the board (see link here: TBAC Recommended Financing Table Q3 2023).
• This would mark the first time Treasury has upped sizes since February 2021, which kicked off a peak of issuance during which nearly $1T of coupons were being auctioned per quarter until being dialled back at the end of 2021.
• The risk is of a smaller increase (sizes up by $1B in Aug so as not to rock the boat too much amid heavy bill issuance) or no increase whatsoever (waiting until November).
• That's due in part to Treasury's ongoing net bill issuance as it rebuilds the Treasury General Account following the debt limit crisis. Indeed TBAC's recommendations were made amid the debt limit uncertainty and it's likely they will be revisited.
• But we will revisit the outlook in our preview of August 2nd's refunding announcement.

Source: Treasury, MNI