U.S. Treasury Expected to Keep Forward Guidance on Auction Sizes — Market Talk

What happened

J.P. Morgan strategists expect the U.S. Treasury to keep forward guidance and nominal coupon and buyback auction sizes unchanged in its November refunding announcement. They see a risk of cutting longer-term auction sizes, although they say there is no valid reason to do so.

Confirmed

Global impact / market context

Auction sizes determine how much government debt investors must buy, affecting the supply of bonds and the Treasury’s funding. If longer-term sales were reduced, fewer bonds at those maturities could ease pressure on their prices and borrowing costs, while shifting the funding mix.

Analyst inference

The announcement is still upcoming, so J.P. Morgan’s expectation is not a confirmed Treasury decision. Its strategists favor removing “at least” from the guidance, but point to the Treasury’s patience last quarter and its specific August change as signs it may avoid another adjustment.

Analyst inference

What to watch

1. The November refunding announcement will reveal whether the Treasury keeps forward guidance and nominal coupon and buyback auction sizes unchanged, as J.P. Morgan expects. Confirmed
2. Watch whether the Treasury removes “at least” from its long-standing forward guidance, a wording change J.P. Morgan strategists say it should make. Proposed
3. If longer-term auction sizes are cut, fewer bonds would be offered at those maturities, potentially easing the supply investors need to absorb and changing Treasury funding costs. Analyst inference

Evidence

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