August UST Refunding Preview

研报英文原文证据摘录

August UST Refunding Preview

IdeaMWhere do risks to our baseline view lie?

As the passage of time brings the point when coupons eventually need to increase closer,

we think there are two scenarios informing the decision-making process at Treasury:

1. Putting off communication on coupon increases for as long as possible, given

sensitivity to current elevated market yields;

2. There is more comfort in running a higher bill share than most investors expect.

These two factors in conjunction with lower realized budget deficits skew risks toward

Treasury signaling coupon sizes are held constant for longer than February 2027.

• We think that could come from either a removal of the sentence on forward

guidance altogether, or having it still state "Treasury anticipates maintaining

nominal coupon and FRN auction sizes for at least the next several quarters."

Options to address Treasury market sell-off

We see the following approaches from Treasury as possibilities to address recent moves

in the long-end of the Treasury curve, in order of likelihood:

1. Make no changes to current forward guidance on issuance;

2. Revise issuance forward guidance to exclude the long-end from coupon increases;

3. Remove any reference to timing around forward guidance on issuance;

4. An explicit statement there is no binding limit on how large the bill share can be;

5. Expand long-end buybacks, funded with TGA cash - a better use case for excess

TGA cash than investing in the repo market;

6. Consider signaling an intent to align long-end coupons down to sizes consistent

with lower structural market demand.

The trade-offs of more bill issuance

The guiding principle in Treasury debt management is to finance the US government in a

regular and predictable manner at the least cost over time.