Wall Street is bracing for the biggest overhaul in guidance on US Treasury issuance since early 2024. Treasury Secretary Scott Bessent surprised dealers in recent months by intervening in the bond market to drive down yields, and many dealers now expect the Treasury to change its guidance in its quarterly policy statement on Wednesday.
The guidance has laid out steady plans for note and bond issuance for more than two years. A shift could pave the way for cuts in 2027 to sales of the longest-dated debt, balanced by bigger auctions of bills and shorter-term notes. Citigroup Inc. predicts the Treasury will announce cuts to sales of 20- and 30-year bonds starting this month, which would effectively violate the current guidance. Bessent recently ramped up buybacks of outstanding securities, a move seen as a reaction to a surge in yields.
Some analysts caution that buybacks are too small to move the market. April La Russe of Insight Investment said that if the Treasury doesn't like where yields are, it can adjust issuance. Yields have retreated since longer-dated rates hit their highest in more than two decades in early October, but 30-year bonds were still trading above 5.30% on Friday. Relying more heavily on bills also carries risks, since the US now auctions more than half a trillion dollars in a given week and officials sold a record $839 billion last week.
UBS's Phoebe White said guidance is more likely than immediate action, though the Treasury's recent unconventional behavior increases the odds it will deviate from historical precedent. UBS expects no change in actual issuance until May. Next week's quarterly refunding auctions would total $125 billion if sizes remain unchanged. Dealers have long expected increases to resume because of rising public debt and annual deficits of around $2 trillion.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing