Treasury Refunding: No Changes To Auction Sizes; Bessent Keeps "At Least" In Forward Guidance

In our preview to this morning's Quarterly Refunding Statement, we said that we do not expect major changes and that, at most, the treasury might adjust its statement language to soften the forward guidance on possibly futures increase in coupon auction sizes with one likely change would be dropping “at least” while retaining the expectation for unchanged coupon sizes over “the next several quarters” (recall Deutsche Bank said it expects nominal coupon increases beginning in February 2027). 

Overnight, JPMorgan agreed, writing that while the current auction calendar will leave Treasury well financed through FY27, "we do not think it will be adequate to meet the widening funding gap from FY27 and onward, and we continue to project a series of coupon auction increases beginning in February 2027." Accordingly, like DB, JPM also expected the Treasury to remove “at least” from the statement that “Treasury anticipates maintaining nominal coupon and FRN auction sizes for at least the next several quarters." The bank said that If its expectations are realized, "we think this could push intermediate yields higher."

Well, moments ago the Treasury published its latest Quarterly Refunding Announcement, and contrary to prevailing expectations, it refused to make even a gentle hint at rising coupon sizes by keeping the "at least" language from the abovementioned statement, instead keeping it as is, or rather as was: 

Based on current projected borrowing needs, Treasury anticipates maintaining nominal coupon and FRN auction sizes for at least the next several quarters

In other words, the US Treasury signaled again that it’s still comfortable using Yellen's Activist Treasury Issuance playbook to issue Bills, and not increase coupon issuance, to meet escalating government borrowing needs, even as warnings emerge about the strategy’s risks.

Ahead of the QRA, dealers were divided heading into the so-called quarterly refunding release on whether it might alter its guidance. Outsize US fiscal deficits make an expansion in longer-dated auctions practically inevitable at some stage. The department on Monday boosted its estimate for net borrowing this quarter amid lower net cash flows.

US debt managers have been using the same forward guidance since early 2024, in a policy that’s steadily boosted the share of bills of total debt outstanding (to roughly 22% from 14% before covid). The International Monetary Fund cautioned last month that this leaves federal debt costs more vulnerable to sudden swings in rates and shifts in sentiment, because auctions are more frequent.

And sure enough, with no changes to the forward guidance:

• *TREASURY YIELDS EDGE LOWER AFTER UNCHANGED GUIDANCE ON AUCTIONS

The rest of the statement was also in line with expectations, with the Treasury stating "it believes its current auction sizes leave it well positioned to address potential changes to the fiscal outlook and to the size and composition of the SOMA portfolio." It added that it was monitoring SOMA purchases of Treasury bills and growing demand for Treasury bills from the private sector.  And, as before, looking ahead the treasury continues to evaluate potential future increases to nominal coupon and FRN auction sizes, with a focus on trends in structural demand and potential costs and risks of various issuance profiles. 

Looking at the actual refunding auctions next, the Treasury’s refunding debt sales will total $125 billion, unchanged from the sum unveiled in February and in line with the expectations of Wall Street bond dealers.

Treasury also maintained guidance on coupon sizes for the coming quarters. Refunding issuance to raise new cash of approximately $41.7BN (offering $125BN to refund $83.3BN).

• Treasury to sell $58bn of 3-year notes on May 11
• Treasury to sell $42bn of 10-year notes on May 12
• Treasury to sell $25bn of 30-year bonds on May 13

The table below presents the actual auction sizes for the February to April 2026 quarter and the anticipated auction sizes for the May to July 2026 quarter: 

The total compares to a peak of $126BN first reached in Feb. 2021; auction sizes across the curve began rising in 2018 to finance tax cuts and surged in 2020 to finance the federal pandemic response, and to give the Fed's QE X securities to buy.

Here are some other highlights from the Refunding report: 

Bills

• Treasury expects to further increase offering sizes of shorter-dated benchmark bills over the coming weeks and, in late-May, anticipates issuing a short-dated CMB to meet the peak liquidity needs at the end of May due to maturing coupon securities.
• Given projections for receipts associated with the mid-month corporate and non-withheld tax date, Treasury expects to implement modest reductions to short-dated bill auction sizes during the month of June. 
• Thereafter, in July, Treasury anticipates incrementally increasing bill auction sizes across the curve.  As always, Treasury will continue to evaluate near-term borrowing needs and assess additional adjustments to bill auction sizes as appropriate

TIPS

• Treasury plans to maintain the 10-year TIPS reopening this May at $19 billion; the five-year TIPS reopening in June at $24 billion; and the 10-year TIPS new issue at $21 billion in July

20-year

• Treasury is modifying settlement timing for 20-year bond reopening auctions.
• From the reopening auction scheduled for June 16th, 20-year reopening auctions will settle on the Friday of the auction week, while new issues will continue to settle at month end.

Buybacks (lowers cash management buybacks in 1mth-2-year, maintains liquidity support buybacks)

• Expects to purchase up to USD 38bln in off-the-run securities across buckets for liquidity support (unchanged) and up to USD 25bln in the 1-month to 2-year maturity bucket for cash management purposes (prev. USD 75bln in Q1).

Cash Balance

• Treasury is assuming a $900 billion cash balance at the end of June.
• Treasury estimates that the size of the Treasury General Account (TGA) could peak at $1 trillion (plus or minus $50 billion) in late July.  This figure is consistent with Treasury’s long-standing cash balance policy and is driven by the large outflows expected to occur at that time. 

TBAC Minutes

• Director Pietrangeli says while current issuance sizes are adequate to cover expected borrowing needs for the remainder of FY2026 (prev. Treasury is slightly overfunded in FY2026)
• The median primary dealer forecast for privately-held net marketable borrowing implies a USD 1.3tln funding shortfall in FY2027-28 based on current coupon auction sizes and bill supply (prev. saw USD 1.1trln).
• Debt Manager Jensen says dealers generally anticipate that nominal coupon auction sizes might next increase in early CY2027 (prev. late CY 2026 or CY early 2027), and expect Treasury to modify its forward guidance several quarters ahead of such a change.
• The TBACCommittee unanimously recommended that Treasury maintain nominal coupon, FRN, and TIPS auction sizes at current levels
• TBAC continues to believe that increases in coupon issuance could be warranted in FY2027 and discussed potential changes to the forward guidance for Treasury to consider
• Committee had a "healthy debate" whether Treasury should consider investing excess cash in the overnight Treasury repo market to generate investment returns while “maintaining prudent risk management and avoiding market disruptions”
  • Key design choices mentioned by Committee members include the time of day that Treasury deploys cash into the repo market, the specific market segment that Treasury would invest in (e.g., triparty, centrally cleared), and Treasury’s required return
  • Presenter stressed that the economic viability of investing in the repo market is dependent on the spread between the rate Treasury earns on repo investments and the Federal Reserve’s interest on reserve balances rate (IORB)
  • Committee agreed that while there are potential economic returns from such investments, their size and economic viability depend on the market environment and monetary policy, and that additional study is warranted regarding operational and implementation considerations
• Committee discussed the expansion of central clearing in Treasury securities market and the presenter reviewed key areas of progress by both the industry and regulators since the extension of the implementation deadlines, noting the recent increase in central clearing activity
• Presenter highlighted recent requests for exemptions related to certain inter-affiliate and extraterritorial transactions as key outstanding issues to resolve
• Presenter concluded that, although the industry has made steady progress, some operational and implementation challenges remain as the market transitions to expanded central clearing