The US Department of the Treasury is maintaining the unchanged quarterly auction size of its long-term debt, with quarterly refinancing set at $125 billion, and reiterating its guidance that it will not increase the issuance size 'at least in the coming quarters,' all in line with market expectations.

The US Department of the Treasury stated in its Wednesday announcement that it will sell a total of $125 billion in securities in next week's quarterly refinancing auction, with maturities including 3, 10, and 30 years. Based on current borrowing demand forecasts, the Treasury expects not to need to increase the auction size of nominal coupon bonds or Floating Rate Notes (FRN) for 'at least in the coming quarters.'

$125 billion will consist of the following parts, raising approximately $8.6 billion of new cash through refinancing:

• $58 billion of 3-year US bonds on November 4.

• $42 billion of 10-year US bonds on November 5.

• $25 billion of 30-year US bonds on November 6.

During these three months, the US Department of the Treasury plans to use short-term Treasury securities with a maximum maturity of one year to address any seasonal or unexpected changes in borrowing demand. The US Treasury expects to moderately reduce short-term Treasury securities in December and then increase them again in January next year.

Previously, the analysis generally believed that the US Treasury would maintain the guidance of "keeping the size of note and bond auctions unchanged for at least the next few quarters". Many traders expect that this size can meet the funding needs of the US government until the second half of 2025. However, any signs of increased supply may disrupt the bond market.

Despite the continuous historical highs in the US fiscal deficit, since May, the US Treasury has issued guidance indicating that it will "keep the size of note and bond auctions unchanged for at least the next few quarters". Some strategists warn that given the last refinancing plan released by the Biden administration on Wednesday, investors should be cautious about the new guidance from the US Treasury. The results of the US presidential election on November 5 next week may bring changes in US debt management strategies and related personnel.

Since neither Trump nor Harris has made deficit reduction a core part of their election campaigns, at some point, an increase in the long-term debt sales is inevitable. Some recent auctions have raised concerns in the market about the size of US debt issuance. For example, the winning yields of the latest 2-year and 5-year US Treasury monthly auctions were higher than expected, showing this concern.

Regardless of who wins, the new US government may have to face the constraints of the federal debt ceiling, which will be reinstated in early January next year. Unless the US Congress quickly suspends or raises the limit again, the US Treasury will have to rely on a series of special measures and reduce the issuance of Treasury securities and cash balances to meet spending obligations.

On Monday of this week, the US Treasury expects net borrowings for the first quarter of 2025 to be $823 billion, assuming an end-of-quarter cash balance of $850 billion. This will be the largest nominal borrowing amount in a quarter ever, although not so after adjusting for changes in cash balances during the quarter.

In another statement on Wednesday, the Treasury Borrowing Advisory Committee (TBAC), an external advisory group consisting of traders, fund managers, and other market participants, emphasized:

Constraints on the debt ceiling may hinder the US government in effectively financing at the lowest possible taxpayer cost. If the debt ceiling issue is not resolved, it could undermine the foundation of the US Treasury market. These events may lead to significant economic uncertainty, affect financial markets, and impact the US credit rating.

Assistant Secretary for Financial Markets at the US Treasury, Josh Frost, stated in a press conference:

The US Department of the Treasury has been conveying this message for many years, the only path is to have Congress timely raise or suspend the debt ceiling. Regardless of the scheduling, we believe the guidance on January Treasury Bond issuance remains valid.

One potential dynamic that could benefit the US Department of the Treasury is the Federal Reserve further slowing down or stopping the reduction of its holdings of US Treasury bonds. The Fed currently allows a maximum of $25 billion of US Treasury bonds to mature each month without reinvestment, forcing the US Treasury to sell more bonds to the public.

Regarding Treasury Inflation-Protected Securities (TIPS), the US Department of the Treasury continues to moderately increase to ensure that the proportion of TIPS to total debt remains stable. Over the next three months until January, the US Department of the Treasury plans:

• Maintain the November 10-year TIPS reissue auction volume at $17 billion

• Increase the December 5-year TIPS reissue auction volume by $1 billion to $22 billion

• Increase the January 10-year TIPS new issue auction volume by $1 billion to $20 billion

In the survey of traders before the quarterly refinancing announcement, the US Department of the Treasury had asked whether other term lengths should be added to the existing three TIPS terms.

The US Department of the Treasury also sought opinions from TBAC on the use of digital technology in the bond market, including the potential benefits and costs of tokenizing bonds, the use of blockchain, and how these trends might affect bond issuance and secondary market trading.

The U.S. Treasury Department also detailed a new set of repurchase operation arrangements from November to early February. The Treasury Department started repurchase operations in May to support market liquidity. Additionally, in September, the Treasury Department also initiated repurchase operations for cash management purposes. TBAC states that the new repurchase plan continues to play a moderate role in liquidity support, including repurchase operations for cash management.

Editor/ping