The Treasury Department revealed its funding plan through April that continues to put more emphasis on relatively short-term debt. Along with ADP data showing a jobs slowdown last month, the news sent the 10-year Treasury yield lower as the S&P 500 slipped following big tech earnings reports.
Treasury Refunding Announcement
The Treasury Department released a table showing moderate increases in Treasury auctions for two-, three- and five-year government bonds, but minimal increases for durations of 10 years and beyond.
That appears to be a continuation of the strategy revealed on Nov. 1, coming after the 10-year Treasury yield had spiked to 5%, partly on concern that big fiscal deficits would create too much supply for markets to easily absorb at lower rates.
On Monday, markets responded positively to Treasury's announcement that it will issue $760 billion in government debt during the first quarter. That was $56 billion below the $816 billion total estimated on Oct. 30. Treasury said the reduced amount reflects "higher net fiscal flows" and a higher-than-expected cash balance to start the year.
During the fourth quarter, Treasury borrowing totaled $776 billion, in line with the Oct. 30 estimate. However, Treasury said its cash balance finished the year at $769 billion, $19 billion higher than it had forecast.
For Q2, a quarter which typically sees lower borrowing because of tax payments, the government sees just $202 billion in borrowing.
The 10-year Treasury yield, which peaked near 5% just ahead of the Oct. 30 borrowing plan, began its dramatic retreat after the government cut its Q4 borrowing estimate by $76 billion vs. the level announced in July.
However, the rapid decline in inflation has been the biggest reason for the rally in Treasury yields. The Fed's primary inflation gauge, the core PCE price index, has been running at just a 1.9% annual rate over the past six months, even below the Fed's 2% target.
Also on Wednesday, ADP said private-sector employers added 107,000 jobs in January vs. estimates of 145,000.
The S&P 500 fell 0.5% in Wednesday morning stock market action, after dipping 0.1% on Tuesday from the prior session's record closing high. The 10-year Treasury yield dived nine basis points to 3.97%.
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