Source: Wall Street News
The US kept the scale of refinancing bonds issued unchanged at 125 billion US dollars from May to July, in line with market expectations. According to some analysts, this benefited from the Federal Reserve's plan to cut the QT downsizing scale by half. The US will also launch its first US bond repurchase program since 2002, with monthly repurchases of up to 10 billion US dollars to support liquidity. It will also gradually increase the scale of TIPS auctions and upgrade the 6-week CMB to a short-term US debt benchmark.
On Wednesday, May 1, the US Treasury set the refinancing scale for the May to July quarter unchanged at 125 billion US dollars, which is in line with market expectations, and will launch the first existing treasury bond repurchase operation in 20 years from the end of May to support liquidity and improve cash management.
The US kept the scale of refinancing bonds unchanged in the May-July quarter, benefiting from the Federal Reserve's plan to cut QT by half
The statement said that next week it will issue 58 billion US dollars of three-year US Treasury bonds, 42 billion US dollars of 10-year US bonds, and 25 billion US dollars of 30-year US bonds from May 7 to 9, respectively. The total issuance scale is 125 billion US dollars, which will be used to repay about 107.8 billion US dollars of privately held treasury bonds due on May 15, representing about 17.2 billion US dollars of new cash raised from private investors.
After increasing the scale of medium- to long-term bond issuance for three consecutive quarters, the US Treasury stated in January of this year that it may not further increase the scale of refinancing bonds this year. The statement reiterated that according to current estimated borrowing demand, it is expected that there will be no need to increase the auction scale of conventional bonds (nominal coupons or variable interest rate notes FRN) “at least in the next few quarters.”
The US Treasury Department mentioned that since August of last year, the issuance of conventional treasury bonds has been drastically increased, and many auctions have reached record levels, mainly to better cope with potential changes in the fiscal outlook and potential changes in the speed and duration of redemption of treasury bonds (SOMA) held by the Federal Reserve.
Many analysts have pointed out that since the US Treasury can delay raising the financing scale of medium- and long-term treasury bonds, it may suggest that the Federal Reserve will announce halving the pace of reducing its holdings of US Treasury bonds in passive reduction (QT) as early as today's FOMC meeting.
Previously, due to the widening US federal budget deficit and the Federal Reserve's quantitative austerity actions, the US Treasury's borrowing demand to issue bonds to private investors continued to escalate. Meanwhile, the Federal Reserve's slowing down the pace of quantitative austerity will help ease the US government's financing pressure.
However, some analysts say that since the US budget deficit continues to be at a historically high level, it is expected that the US government will still need to resume increasing the issuance of long-term treasury bonds over time. This will disrupt US bond yields, because if the US Treasury lowers financing expectations,Bond-market bears may be squeezed：
“The US Treasury Department is seeking advice from TBAC, a borrowing advisory committee composed of market participants on how the government can minimize borrowing costs and expand the US Treasury investor base in the future.
TBAC said that the US Treasury's borrowing demand is expected to trigger another increase in treasury bond issuance in the next few years. Their proposals include issuing new types of securities, such as redeemable bonds, green bonds, and new long-term floating interest rate and inflation-linked bonds.”
At the end of May, the first US debt repurchase program in 20 years was launched, with monthly repurchases of up to 10 billion US dollars to support liquidity
The US Treasury will also launch its first treasury bond repurchase program since 2002 in the May-July quarter.
The first operation is scheduled to be carried out on May 29 to support market liquidity. In each operation carried out every week, up to 2 billion US dollars in nominal coupon securities and up to 500 million US dollars of TIPS (treasury bond inflation-protected securities) can be repurchased. After resolving the restrictions on the temporary settlement process, it is planned to repurchase up to 30 billion US dollars per quarter in the future.
Meanwhile, the US Treasury Department said there are no plans to carry out bond repurchases for the May-July quarter this year to improve cash management: “Cash management repurchases may begin later in 2024, depending on fiscal flows and market conditions.”
According to some analysts, the current treasury bond repurchase plan has almost no similarities with the repurchase of 20 years ago. The last buyback was introduced during a period of historic US budget surpluses, allowing the US Treasury to “extravagantly take back” some outstanding high-interest securities.
The US Treasury Department said on Monday that the upcoming treasury bond repurchase program “is not expected to have a significant impact on privately held net negotiable debt, as newly issued securities will replace existing securities that have been repurchased.”
The US Treasury will gradually increase the scale of TIPS auctions and upgrade the 6-week CMB to the short-term US debt benchmark
Regarding TIPS bond issuance and financing, the US Treasury Department said that considering medium- to long-term borrowing prospects and the structural balance between TIPS supply and demand, it will “continue to gradually increase the scale of TIPS auctions to maintain a stable share of TIPS's total outstanding and negotiable debt.”
For example, the US government plans to keep the 10-year TIPS reopening auction scale unchanged at 16 billion US dollars in May this year, increase the scale of the 5-year TIPS reopening auction in June by 1 billion US dollars to 21 billion US dollars, and increase the scale of the new 10-year TIPS auction in July by 1 billion US dollars to 19 billion US dollars.
In terms of issuing short-term bonds (that is, US Treasury bonds with a term of less than a year, called a bill), the US government is expected to increase the size of short-term bond auctions for 4, 6, and 8 weeks in the next few days to ensure sufficient liquidity to meet the weekly cash requirements at the end of May:
“Subsequently, considering the non-withholding tax and corporate tax dates of June 15, the US Treasury Department is expected to moderately reduce the short-term US bond auction scale from early June to mid-June, but the short-term bond auction scale in July is expected to return to or close to the high levels in February and March this year.”
Furthermore, after considering the medium-term supply prospects of short-term US bonds and gathering feedback from various market participants, the US Treasury announced that the 6-week CMB (Cash Management Note) will be changed to a short-term US debt benchmark:
“Investors reacted strongly to the 6-week CMB, and raising it to a benchmark position will further support demand. However, the timing for the 6-week CMB auction as the benchmark has not yet been determined, and the US Treasury will continue to issue CMB every week for 6 weeks during the transition period.”
edit/lambor