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.

Wells Fargo Research Team Wells Fargo

Download The Full Article

Author

Wells Fargo Research Team

Wells Fargo

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.