The U.S. Treasury Department said on Wednesday it will hold its coupon issuance and floating-rate note issuance steady "for at least the next several quarters." The move is likely to ease fears that an earlier-than-expected increase in longer-dated debt auctions could add pressure to yields already trading near multi-year highs.
Yields have climbed recently as a renewed spike in oil prices reignited inflation concerns, while confusion over Federal Reserve policy added further upward pressure. Worries that Treasury could boost issuance of longer-dated debt had compounded the move.
"There were at least some investors who were looking for a change in guidance this time around, which I think should help the Treasury market breathe some relief," said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities.
The Treasury's announcement confirms analysts' expectations that auction sizes won't be increased until next year. The Treasury said it intends to sell $125 billion next week as part of its quarterly refunding, which will include $58 billion in 3-year notes, $42 billion in 10-year notes and $25 billion in 30-year bonds.
It expects to keep current benchmark bill auction sizes unchanged in the coming weeks, while potentially issuing a short-dated cash management bill to address funding needs around the end of August. The government has increasingly relied on Treasury bills, which still elicit strong demand, to meet its borrowing needs rather than issuing more longer-dated debt.
The only real check on that reliance would be pushback from the market, specifically if T-bill yields began rising well above other money-market rates of similar maturity, signaling oversupply, said Ryan Swift, chief U.S. bond strategist at BCA Research. For now, he added, "the market's happy to take them down."
Treasury said it anticipates trimming shorter-dated bill auction sizes during September, citing expected receipts tied to the mid-September corporate and non-withheld tax deadline.
The U.S. government added that the cash balance in the Treasury General Account could peak at around $1.05 trillion in late October.
