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• The U.S. Treasury has announced it will maintain current auction sizes for notes and bonds through at least the next several quarters due to debt-cap pressures.
• The Treasury plans to reduce short-dated bill auction sizes in December but will increase them in January based on fiscal outflows.
• Treasury Inflation-Protected Securities (TIPS) auction sizes will see moderate increases to maintain a stable share of TIPS in total marketable debt.

Quick Brief

2-Minute Digest

Essential Context

The U.S. Treasury Department has detailed its plans to manage debt financing amidst ongoing debt-cap pressures. The Treasury will maintain current auction sizes for notes and bonds, aiming to raise new cash while refunding maturing securities.

Core Players

• U.S. Treasury Department – Responsible for managing U.S. government debt
• Acting Assistant Secretary for Financial Markets Brian Smith – Oversees Treasury’s debt management strategies
• Federal Reserve – Manages the Federal Reserve System Open Market Account (SOMA)

Key Numbers

• $125 billion – Total quarterly refunding amount from November 2024 to January 2025
• $8.6 billion – New cash to be raised from private investors during the same period
• $116.4 billion – Privately-held Treasury notes and bonds maturing on November 15, 2024
• $546 billion – Treasury’s borrowing estimate for the fourth quarter of 2024

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The Catalyst

The current debt-cap pressures have necessitated careful management of Treasury auctions. The Treasury has decided to maintain existing auction sizes to ensure it remains well-funded and adaptable to potential fiscal changes.

“The refunding was pretty much close to our expectations,” noted Angelo Manolatos, a macro strategist at Wells Fargo Securities. “To us, we think that the Treasury is well-funded to meet its borrowing needs and current auction sizes are sufficient until November 2025.”

Inside Forces

The Treasury’s decision reflects its confidence in its current financing strategies. It plans to issue $58 billion in 3-year notes, $42 billion in 10-year notes, and $25 billion in 30-year bonds in the upcoming auctions.

The use of cash management bills and adjustments in regular bill auction sizes will help manage any seasonal or unexpected variations in borrowing needs.

Power Dynamics

The Federal Reserve’s management of SOMA and the Treasury’s debt financing strategies are closely intertwined. The Treasury believes its current auction sizes are sufficient to address potential changes in SOMA redemptions.

The Treasury also plans to conduct buybacks, including weekly liquidity support buybacks of up to $4 billion and cash management buybacks around the April 2025 tax date.

Outside Impact

The adjustments in auction sizes and the use of cash management bills will have broader implications for the financial markets. These moves aim to maintain stability and ensure the government’s financing needs are met efficiently.

The moderate increases in TIPS auction sizes will help maintain a stable share of TIPS in the total marketable debt, reflecting the intermediate- to long-term borrowing outlook.

Future Forces

Looking ahead, the Treasury will maintain its current auction sizes for at least the next several quarters. Here are some key future actions:

• Transitioning the 6-week cash management bill to benchmark status by February 18, 2025.
• Increasing TIPS auction sizes incrementally to maintain a stable share of TIPS in total marketable debt.
• Conducting buybacks to support liquidity and manage cash flows around key tax dates.

Data Points

• November 10, 2024: 10-year TIPS reopening auction size maintained at $17 billion
• December 2024: Five-year TIPS reopening auction size increased to $22 billion
• January 2025: 10-year TIPS new issue auction size increased to $20 billion
• February to April 2025: Regular weekly bill auctions, cash management bills, and monthly note and bond auctions will continue.