US Rates Strategy: August UST Refunding Reaction

Research evidence excerpt

M

Idea

August 5, 2026 08:25 PM GMT

US Rates Strategy | North America

Morgan Stanley & Co. LLC

Martin W Tobias, CFA

Strategist

August UST Refunding Reaction

Eli P Carter

Strategist

Amidst rising market yields and close proximity to JPY FX

intervention, Treasury applied situational awareness and made

no changes to forward guidance on timing of coupon increases.

We think markets underappreciated the optionality now in

"changes" as opposed to "increases" in future auction sizes.

Matthew Hornbach

Strategist

Shaun Zhou

Strategist

Aryaman Singh

Strategist

Key Takeaways

Treasury set plans to keep coupons unchanged over the August quarter, in line

with our expectations. We continue see coupon increases in February 2027.

An important tweak was made in discussion about trade-offs of various issuance

paths; future “changes” are now being evaluated, instead of future “increases.”

We think this change was made to allow flexibility to reduce long-end coupons

amid lower structural demand, and likely came in response to the recent sell-off.

Treasury did retain the language that it still anticipates maintaining nominal

coupons and FRN auction sizes for “at least the next several quarters.”

We do not think this rules out coupon increases starting in February 2027 based

on historical precedent around forward guidance in non-crisis issuance changes.

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