On Tuesday, January 16, local time, the US Treasury raised the auction scale for various types of short-term treasury notes, the first increase since October last year. The US tax filing season is about to begin on January 29, and the Treasury may need to issue tax refunds to earlier tax filers, thus increasing the scale of treasury bill sales.

Specifically, on January 18, the scale of issuance of 4-cycle and 8-cycle US Treasury notes was 85 billion US dollars, which is 5 billion US dollars higher than the previous week. The US Treasury also plans to bid 58 billion US dollars of 17-cycle treasury notes, compared to 56 billion US dollars last week.

In November of last year, the US Treasury slightly reduced the size of the shortest treasury bill auctions. This was due to an unexpected increase in the Treasury's tax revenue during the October and November tax seasons. The Ministry of Finance stated in its last quarterly refinancing plan that it expects to slightly reduce the bid scale of short-term treasury notes in early December, and this situation may continue until mid-late January.

Therefore, the recently announced increase in the treasury bill auction scale can be said to be expected. In fact, the US Treasury usually expands the issuance of bonds in January and February to cover potential tax refunds that may consume its treasury until the April tax deadline is received.

Industry insiders expect that the US Treasury will further expand the scale of issuing short-term treasury notes in the future. From now until the beginning of February, the weekly short-term treasury bill sales will increase two to three times.

In the quarterly refinancing plan announced by the US Treasury Department in early August last year, the bid sales scale for three-year, ten-year, and 30-year US bonds increased by 2 billion US dollars, 3 billion US dollars, and 2 billion US dollars, respectively, and the issuance scale of all other notes and bonds also increased. This drove long-term US bond yields to soar sharply over the next two months. As a result, the US Treasury's bond issuance plan has attracted market attention.

The US Treasury's quarterly refinancing plan usually focuses more on raising capital by issuing long-term US Treasury bonds, such as 10-year US bonds. This is closely related to the country's long-term fiscal policy and debt management. In contrast, weekly ultra-short-term bond auctions mainly involve US bonds with terms of less than one year, such as 3-month and 6-month terms. This is a regular cash flow management tool, which more reflects short-term cash management needs.

Compared with changes in the scale of weekly short-term note auctions, the US Treasury's quarterly refinancing plans tend to have a more significant market impact, especially for long-term securities such as 10-year US Treasury yields, which anchor global asset pricing. The US Treasury Department will announce its next quarterly refinancing plan in early February.

Last week, the US Treasury Department indicated that the US deficit for the first quarter of fiscal year 2024 (October 1, 2023 to December 31, 2023) was about US$510 billion, which was US$89 billion higher than the first quarter of fiscal year 2023, an increase of 21% over the previous year. Among them, the US government's fiscal deficit reached 129 billion US dollars in December last year, an increase of 44 billion US dollars over the same period last year, a sharp increase of 52% over the previous year, which greatly exceeded expectations and set a record high in December. This is partly due to increased social security spending and interest on public debt.

High debt and rising interest rates in 2023 brought the pressure on the US fiscal interest rate to a new high since 1996. This is also why the market began paying close attention to the US Treasury's debt issuance plan last year, and this is probably the reason for the early shift in position given by the Federal Reserve in December last year.

Editor/Somer