Treasury yields are already under upward....>

US TSYS: Treasury yields are already under upward pressure because of the Fed's

reverse-QE. With the SOMA run-off already happening, the Treasury must sell more

debt to the public, rather than the Fed. For 2018, this can be calculated as an

extra $197bln of net/gross issuance. How will this be funded?

- Margaret Kerins and Dan Belton at BMO Capital Markets note that the Treasury

has already announced increase in nominal and floater debt in the re-funding

announcement from now until April but more changes are necessary in subsequent

re-fundings.

- Regarding coupon issuance BMO sees "a continued gradual increase, but reduces

the monthly increase for 2yr and 3yr gross issuance to $1 bn beginning with the

next refunding announcement. At the current $2 bn pace of monthly increases, 2yr

and 3yr auction sizes would reach $48 bn and $46 bn by year-end, which exceeds

the maximum auction sizes indicated by the most recent primary dealer survey."

- They forecast net coupon issuance of $710bln, which still leaves a shortfall

of $429bln to their estimated 2018 funding need of $1.1trn. This is expected to

be filled via $364bln of net bill issuance and an extra $65bln of TIPS sales.