Nomura N.Amer hd of rate research....>

US TSYS/SUPPLY: Nomura N.Amer hd of rate research George Goncalves projects

$650B US budget deficit in FY2018, $850B in FY2019. "To finance the fiscal

stimulus as well as Fed's balance-sheet UST rolloffs, we have been advocating an

across-the-board approach where auction sizes on all tenors increase. The aim

would be to keep Weighted Average Maturities (WAMS) increasing (a potentially

introduction of a new maturity points in the long-end would help here too)." 

- He thinks "the sooner Treasury decides and kicks off the process of auction

size increases, the more gradually the sizes can grow throughout 2018-19 to

avoid disruptions." TBAC in Aug. refunding indicated Tsy "wld make a decision

around its issuance strategy 'as early as the Nov. refunding but no later than"

1Q 2018 so in Aug, he was "optimistic that the Tsy wd start with small auction

sizes, e.g., $1B increase in the Nov. refunding. We now think that is unlikely,

given the lack of clarity on tax reform and the looming debt ceiling deadline

early Dec." His base case is "no changes on cpn auctn sizes" for this qtr, but

"Tsy may keep options open for small auctn size increases intra-qrtr (eg 2s, 3s)

esp. if debt ceiling gets resolved and tax discussion" progresses."