A guidance change years in the making
When the Treasury publishes its quarterly refunding statement on Wednesday, investors will scrutinize whether officials alter the language that has guided issuance for more than two years. That language has promised stable auction sizes for medium- and long-term debt. Dealers broadly expect the largest revision to that guidance since early 2024, according to reporting on the upcoming announcement.[S1][S2]
The shift would follow Treasury Secretary Scott Bessent's unexpected suggestion that he is prepared to step into the bond market to bring yields lower. A revised statement could set up reductions in 20-year and 30-year bond sales in 2027 alongside larger auctions of Treasury bills and shorter-dated notes. Citigroup expects cuts to 20- and 30-year issuance to begin this month, which would effectively break with the prior refunding guidance.[S1]
The buyback program has already shown how far the department will go. Only a week after the previous refunding plan appeared, Bessent enlarged outstanding Treasury buybacks, a move the market read at the time as a reaction to climbing yields. April LaRusse, who leads the investment specialists team at Insight Investment, argued in an interview that buyback volumes are too modest to alter the market's course, and that issuance is the Treasury's main lever when officials dislike the level of yields.[S1]
Long-end yields and the bill burden
Any adjustment arrives with long-dated yields off the more than two-decade highs reached in early October but still elevated. The 30-year Treasury yield stood above 5.30% on Friday, near where it traded in mid-August when the buyback program was expanded.[S1]
Leaning more heavily on bills maturing within a year to fund the government would eventually test how much supply investors can take. Bills turn over quickly and must be rolled repeatedly, and the U.S. already auctions more than $500 billion weekly, exposing the Treasury to sharp market swings. Auction volume reached a record $839 billion last week.[S1]
Phoebe White, who leads U.S. rates strategy at UBS Group, said the expected move would amount to revised guidance instead of an immediate shift, adding that recent out-of-the-ordinary steps make additional breaks with precedent more likely. UBS anticipates auction sizes will stay unchanged through May. The Treasury first signaled this possibility in August, when officials said they were considering adjustments to upcoming coupon and floating-rate note sales rather than possible increases.[S1]
Dealers split on timing and composition
If auction sizes stay put, next week's refunding sales will total $125 billion. Since Janet Yellen, Bessent's predecessor, set the current guidance, dealers have assumed medium- and long-term sales would eventually grow, pushed by rising public debt and deficits of roughly $2 trillion a year. The Treasury updates its estimate of quarterly borrowing needs on Monday.[S1]
In preparing Wednesday's statement, the department asked primary dealers in its routine pre-refunding questionnaire about structural shifts in demand for Treasuries and what changes future auction sizes might warrant. A JPMorgan team led by strategist Jay Barry said the Treasury's central concern is discomfort with the level of yields, yet it expects the next-several-quarters language to survive into 2027, with sizes unchanged until August and then an increase program centered on 2- to 10-year securities, a view at odds with many dealers.[S1]
Barclays suggested replacing at least the next several quarters with the next several quarters, which it argued would give officials flexibility on timing and composition. Bank of America, Goldman Sachs Group and UBS are among the firms watching whether the wording changes. Observers will also track Wednesday's discussion topics from the Treasury Borrowing Advisory Committee, whose feedback on whether the market can absorb larger bill sales could prove especially telling.[S1]
With federal borrowing climbing and coupon issuance flat, bills have grown to about 22% of outstanding debt as of September, above the 20% long-term average the advisory committee recommended in 2024. JPMorgan argued that cutting long-bond sales would be unwise given coming borrowing needs and early signs of stalling bill demand. Treasury officials have pointed to stablecoin purchases of Treasuries as a new demand source, though such buying has yet to appear at scale. Officials may also issue fresh buyback guidance, having already tripled purchases of 10- to 30-year securities to $6 billion per operation, a level most investors expect to be maintained.[S1]
