Treasury Refunding Highlights
|- In its quarterly refunding statement this morning, Treasury announced no changes to its already-elevated slate of nominal coupon auctions. Treasury also affirmed that it “currently anticipates no further changes in issuance sizes for nominal coupon and floating rate notes for the remainder of the 2019 calendar year.”
- That said, the amount of maturing coupon securities is set to rise substantially over the next couple years. With current auction sizes raising less and less new money over time, and because we expect the deficit to continue growing over the next couple years, we expect Treasury will eventually need to increase auction sizes. In our view, the increases will occur no sooner than the second half of 2020.
- Updated quarter-end cash balance estimates released on Monday are somewhat higher than we had anticipated. Consequently, we now expect net T-bill issuance to be just shy of $200 billion for the second half of this year and $202 billion in Q1-2020.
- Despite some shifts in the timing, the overall story for T-bill supply has not changed on balance: we expect an inflection point in bill supply is imminent, and is unlikely to reverse until next April’s tax receipts come in.
- Treasury also announced what we expect to be the final adjustments for quite some time to its TIPS issuance schedule. The changes include a $2 billion increase to the August 30y TIPS reopening and a $1 billion increase to the September 10y TIPS reopening. These changes to TIPS issuance were in line with what we had anticipated in our preview piece.
- For 2019 as a whole, we look for net Treasury issuance to be $1.1 trillion, after accounting for changes in holdings by the Federal Reserve. The coupons/bills split is about $1 trillion and $100 billion, respectively. In 2020, we look for $629 billion in net coupons and $259 in net bills, again after accounting for anticipated changes in Fed holdings.
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