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US TSYS/SUPPLY: Refunding Guidance: Mixed Expectations (1/2)

US TSYS/SUPPLY
USBulletMarketsFixed Income BulletsNorth America

The main question for February's Refunding announcement (Wednesday 0830ET) is whether Treasury changes its current guidance that it does not "anticipate needing to increase nominal coupon or FRN auction sizes for at least the next several quarters." 

  • With expectations on this being mixed, the risks run two ways: a softening or removal of this guidance would confirm that higher issuance is coming later this year (consensus is for sizes to be increased in August or November) amid expected fiscal loosening, while leaving it unchanged would likely see long-end Treasuries strengthen modestly in relief. Eliminating, or softening, that language could be negative for Treasury markets as it would signal that an increase in coupon sizes is fairly imminent.
  • A majority of analysts whose Refunding previews we saw expect this guidance to be changed, with some risks of removal of the phrase altogether.
  • However other analysts see the guidance changed only later in the year, once the fiscal picture is clearer and the new Treasury Secretary has had more than just a couple of weeks to assess the situation.
  • “No change” would bring a mildly bullish relief rally for longer-end Treasuries in the very short run, we feel.
  • Other possibilities (all of them softening the guidance) include:
    • Affirmatively stating that coupon sizes are expected to rise at some point (ie later this year)
    • Deleting "at least" (so it reads "does not anticipate needing to increase ... for at least the next several quarters")
    • Changing the duration from "several quarters" to a shorter time period
  • May 2023's Refunding - which presaged future coupon increases - noted: “Treasury may need to modestly increase auction sizes later this year, potentially as soon as the August 2023 refunding announcement.” Prior to that, Treasury had quarter-to-quarter guidance.
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The main question for February's Refunding announcement (Wednesday 0830ET) is whether Treasury changes its current guidance that it does not "anticipate needing to increase nominal coupon or FRN auction sizes for at least the next several quarters." 

  • With expectations on this being mixed, the risks run two ways: a softening or removal of this guidance would confirm that higher issuance is coming later this year (consensus is for sizes to be increased in August or November) amid expected fiscal loosening, while leaving it unchanged would likely see long-end Treasuries strengthen modestly in relief. Eliminating, or softening, that language could be negative for Treasury markets as it would signal that an increase in coupon sizes is fairly imminent.
  • A majority of analysts whose Refunding previews we saw expect this guidance to be changed, with some risks of removal of the phrase altogether.
  • However other analysts see the guidance changed only later in the year, once the fiscal picture is clearer and the new Treasury Secretary has had more than just a couple of weeks to assess the situation.
  • “No change” would bring a mildly bullish relief rally for longer-end Treasuries in the very short run, we feel.
  • Other possibilities (all of them softening the guidance) include:
    • Affirmatively stating that coupon sizes are expected to rise at some point (ie later this year)
    • Deleting "at least" (so it reads "does not anticipate needing to increase ... for at least the next several quarters")
    • Changing the duration from "several quarters" to a shorter time period
  • May 2023's Refunding - which presaged future coupon increases - noted: “Treasury may need to modestly increase auction sizes later this year, potentially as soon as the August 2023 refunding announcement.” Prior to that, Treasury had quarter-to-quarter guidance.