Original title: Will the US Treasury announce an important plan on Wednesday, or begin dealing with the fiscal deficit crisis?

Foreign media reported that in the next few months, the US Treasury will reduce its huge sales volume of quarterly notes and bonds for the first time in more than five years. This change is so significant that it is probably not just a response to the Fed's impending reduction in the size of purchases.

The US Treasury will announce the so-called quarterly refinancing plan for long-term securities on Wednesday.At that time, it will be announced what changes will occur in the US Treasury's bond issuance strategy. Although most dealers expect that the scale of debt refinancing of 126 billion US dollars will not change recently, many believe that the Ministry of Finance will prepare for the scale of debt cuts in November.

A few years ago, due to Trump's announcement of tax cuts, the federal deficit soared, emergency spending surged due to the outbreak of the epidemic last year, and the scale of bond issuance continued to rise. Although Congress is negotiating new spending on infrastructure and social projects, demand for borrowing will fall as lawmakers are developing new budget plans for these multi-year plans.

Bank of AmericaMeghan Swiber (Meghan Swiber), an interest rate strategist, said:

“From 2021 to 2022, the federal financing needs will drop sharply. We believe the Treasury needs to implement a reduction in the size of debt issuance as soon as possible, otherwise there is a risk of overfunding.”

If economists' predictions are correct, then this debt reduction plan may occur at the same time that the Federal Reserve reduced purchases of US Treasury bonds. Federal Reserve Chairman Powell said last week that policymakers have begun discussions on the timing and speed of future debt purchases. Analysts expect these projects to launch in early 2022.

J.P. MorganIt is estimated that the total amount of net debt issued by the US in 2022, including notes, will be 1.46 trillion US dollars, a decrease of about 860 billion US dollars from this year. The bank said that in terms of notes and bonds alone, next year's net issuance volume will be reduced by about $1 trillion from 2021. Meanwhile, J.P. Morgan also predicts that since the Federal Reserve is gradually reducing the scale of debt purchases, by 2022, the Federal Reserve will only buy 316 billion US dollars of such securities from the secondary market, down from 960 billion US dollars this year.

The reduction in the amount of US treasury bonds issued may further ease people's fears that the “reduction panic” of 2013 may occur again. At the time, the market was fearful about the prospect of the Fed withdrawing from the stimulus plan. The decline in US Treasury yields in recent months has also helped the market calm this concern.

However, John Briggs, global head of desktop strategy at National Westminster Bank Group, believes the Treasury will not cut the size of debt issuance:

“This is because we are far from balancing our budget. For example, after August 2022, even if we reach the final balance, the debt will still be higher than before the pandemic, and we have to recognize that the deficit will continue for a long time.”

In addition to refinancing, the Treasury Department is currently working to avoid hitting the federal debt ceiling. The previous two-year debt ceiling moratorium ended on Sunday. Economists and strategists all expect Congress to act again to raise or suspend repayment limits until the Treasury doesn't have enough room to avoid a fall payment default.

Currently, first-tier traders dealing directly with the Federal Reserve disagree on when they will reduce the scale of issuing notes and bonds.

Goldman SachsGroup andMorgan StanleyI believe that refinancing in February is more likely to be a starting point for debt reduction. But Barclays Bank andRoyal Bank of CanadaThe capital market said debt reduction may begin with an auction to be held next week.

If the opinions of most traders are correct, then the Ministry of Finance will keep the refinancing scale at $126 billion, including:

$58 billion in three-year bonds

$41 billion in 10-year bonds

$27 billion in 30-year bonds

This is far from the debt model before the outbreak of the pandemic. The total amount of outstanding US Treasury bonds has soared about 50% since the end of 2017 to reach $21.7 trillion.

Because the Ministry of Finance is in a hurry to accumulate cash for emergency relief expenses, most of the increase in fiscal revenue in 2020 came in the form of bills. US one-year treasury bonds accounted for about 25% of the total balance of US outstanding treasury bonds last year. After cutting the size of the issuance of notes to reduce record cash reserves, this ratio is now around 20%. Meanwhile, the Treasury Borrowing Advisory Committee (Treasury Borrowing Advisory Committee), composed of major underwriters and investors, suggests that this ratio range should be 15%-20%.

The US Treasury will release quarterly financing estimates on Monday, and at the same timeAnnounce cash for the next few quartersbalancesThe latest hypothetical data.Details on the bill issuance plan will be announced on Wednesday. According to the latest forecast from the Congressional Budget Office, as the epidemic improves, next year's fiscal deficit will drop from $3 trillion this year to $1.2 trillion.