In a development that drew the attention of Wall Street, the department detailed its plans reimbursement for future debt sales. The announcement comes with Treasury yields hovering around their highest levels since 2007, a reflection of financial markets fearing the damage that rising borrowing costs could cause.
More soon the Treasury will auction $112 billion in debt next week. The sale will be made in three parts, starting on Tuesday with $48 billion in 3-year bonds, and in the following days with individual sales of $40 billion in 10-year bonds and $24 billion in 30-year bonds. The sale matched some estimates made on Wall Street in recent days.
From there, the department said it will increase the size of the auction of various maturities, focusing more on coupon notes and bonds. The department will continue the current level of bill auctions until the end of November, when it hopes to have enough replenishment in the General Account to apply “modest reductions” until the middle to late January.
For auctions of coupon securities, the department detailed an increase in the pace compared to previous levels.
The department expects to increase the size of 2- and 5-year bonds by $3 billion a month, 3-year bonds by $2 billion a month, and 7-year bonds at $1 billion a month.. By the end of January, the auction sizes will see respective increases to $9 billion, $6 billion, $9 billion, and $3 billion.
On Monday, the department said that must borrow $776 billion in the current quarter and $816 billion in the first quarter of calendar 2024.
Changes in auctions are important for investors because they can provide a window into where the returns will be. Markets are worried about whether there will be enough demand to meet Treasury needs, which will push yields higher and could lead to financial problems.
HOWEVERmost auctions have been very busy lately, however yields remain at their highest levels since 2007, the early days of the global financial crisis.
Treasury officials attributed most of the rise in yields to expected higher growth. However, that in turn sparked concern that the Federal Reserve should keep the benchmark rate raised as it continues to try to bring inflation down to acceptable levels.
“Several factors likely contributed to the rise in higher yields,” wrote Deirdre K. Dunn, chairman of the Treasury Borrowing Advisory Committee, and Colin Teichholtz, the group’s vice president.
“For example, the strength of labor market activity and data, the possibility that the neutral interest rate is higher today, the supply-demand dynamic and the return of a positive ‘term premium’ in long-term securities term Treasury may have contributed to some. breadth,” they wrote.