US Treasury quarterly refunding – OCBC

First part of US Treasury quarter refunding plan has been released, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Next focus is Wednesday’s detailed auction document

"Marketing borrowing for the current quarter is estimated at USD1007bn. Materially higher borrowing had been expected primarily to make up for the shortfall of USD449bn of borrowing in Q2 which was then constrained by the debt ceiling. Still, the borrowing estimate in Q3 is slightly on the high side – excluding the impact of lower cash positions, 'the current quarter borrowing estimate is $60bn higher than announced in April'."

"US Treasury still put its cash target of USD850bn to be achieved by the end of Q3, while we had seen that as unnecessary. Nevertheless, we expect bills supply to be readily absorbed, with the increases in TGA balance to be matched by decreases in items on the liability side of the Fed’s balance sheet mainly bank reserves and reverse repos; bank reserves are still likely to stay above USD3trn level after cash rebuild. The next focus is Wednesday’s detailed auction document, including as to whether US Treasury will keep the phrase 'Treasury anticipates maintaining nominal coupon and FRN auction sizes for at least the next several quarters'."

"We expect auction sizes to be kept unchanged for the August-Octover period at least, and probably for another three-month period (November-January), with much lesser impact of SOMA redemption. If US Treasury have to increase the auction sizes after two quarters, then it is a bit uncertain as to whether they would keep the exact wordings including 'at least' and 'the next several quarters'."