Treasury refunding preview

Wells Fargo Research Team Wells Fargo

Summary

We do not anticipate any major policy shifts from the U.S. Treasury at its upcoming quarterly refunding announcement on October 30. We expect coupon auction sizes to remain unchanged for the third consecutive quarter.

Fiscal year (FY) 2024 concluded on September 30, and the federal government ran a budget deficit of roughly $1.8 trillion for the year. Looking ahead to FY 2025, we project the budget deficit will widen to $1.9 trillion. A new Congress and president could shake up the fiscal outlook, but we suspect any big changes to the federal budget would not be felt until FY 2026.

The end of the Federal Reserve's quantitative tightening program is slowly coming into view, and this should help keep growth in Treasury's financing need in check over the next year or so.

The return of the debt ceiling adds another wrinkle to the borrowing outlook. The debt ceiling has been suspended since June 2023, and it will be reinstated on January 2, 2025. It is still a little too early for precise estimates of the "X date," or the date on which the Treasury would be unable to meet all of its obligations. That said, our preliminary read is that the timeline next year would look similar to what occurred in 2023, when the "X date" appeared to be sometime in the first half of June.

Given these factors, we are skeptical that coupon auction sizes will increase in the first half of next year. We suspect it will be August 2025 at the earliest before coupon auction sizes start to grow again.

In the near-term, we expect net T-bill supply to be roughly $50 billion in the current quarter. We project approximately $500 billion of net T-bill issuance in Q1-2025 followed by a $330 billion reduction in T-bills outstanding in Q2 for a total projected net increase in the first half of next year of $170 billion. These projections are conditional on the assumption that the debt ceiling is increased or suspended at some point in the next three to four months. If the debt ceiling is a binding constraint into the summer, much of the new bill supply we expect in the first half of next year will be pushed into the second half of the year.

Download The Full Special Commentary

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.