By Karen Brettell
NEW YORK (Reuters) – The U.S. Treasury Department is expected to leave most of its auction sizes unchanged for the fifth straight quarter when it announces its refunding plans this week, but investors will focus on any clues about increases further down the road, or on the likelihood of a possible near-term cut.
The government will announce its expected borrowing needs for the coming two quarters later on Monday and offer details on its issuance plans on Wednesday.
The Treasury said at its refunding in February, the first under Treasury Secretary Scott Bessent, that it expects to keep most of its debt issuance plans unchanged for the next few quarters, surprising some traders who had expected it would flag larger auction sizes.
If the Treasury repeats the same guidance, that would indicate confidence that it can continue to rely more on shorter-dated debt to fill any debt needs at least near-term, which would help longer-dated bonds that in early April took the brunt of the “tariff tantrum.”
“The bigger focal point is any changes to the forward guidance in terms of what could move the markets,” said Zachary Griffiths, head of IG and macro strategy at CreditSights.
Bessent had criticized former Treasury Secretary Janet Yellen for relying too heavily on shorter-dated debt but has so far not indicated any plans to change the policy.
Gennadiy Goldberg, head U.S. rates strategist at TD Securities in New York, said investors would welcome any shift toward increasing the size of shorter-dated note auctions, instead of other maturities.
“In lieu of actually issuing more front-end auctions or more front-end data or more bills, that would be very well-received by markets,” he said. “That would really help markets stabilize a little bit as there’s still quite a bit of economic uncertainty.”
Longer-dated Treasury yields surged after U.S. President Donald Trump unveiled larger than expected tariffs on April 2, before stabilizing after Trump a week later said he would pause increases for most countries for 90 days.
The recent volatility could encourage the Treasury to consider making some small cuts to longer-dated coupon-bearing auctions as a “high bang-for-the-buck option,” according to analysts at BNP Paribas.
“Our view of the administration has been that it aims to keep the level of long-end yields contained via bond vigilance,” they said in a report.
Traders will also watch for any indications the Treasury could increase buybacks as a result of market dysfunction. Bessent said earlier this month that buybacks were part of a big tool kit the Treasury could deploy if needed.
Some analysts say, however, that relying on less conventional methods as a way to keep yields lower could reduce investor confidence in the market. That could also be the case for cutting longer-dated debt auctions only to increase them again in coming years.
“I could almost see it having the opposite of the intended effect just in the sense that if you’re going to delay the inevitable,” said Griffiths.
(Reporting by Karen Brettell in New York; Additional reporting and editing by Alden Bentley; Editing by Matthew Lewis)
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