US Treasury keeps auction sizes steady; dealers expect change in early 2027

By Gertrude Chavez-Dreyfuss

NEW YORK, May 6 (Reuters) – The U.S. Treasury said on Wednesday it does not expect to increase auction sizes for notes and bonds for several more quarters, in line with market expectations, as it detailed a $125 billion refunding for May to July 2026.

The financing package will raise new cash of $41.7 billion from private investors.

In a statement, the Treasury said it will keep its coupon and floating rate note auction sizes steady for at least the “next several quarters”.

Minutes from the Treasury Borrowing Advisory Committee (TBAC), released on Wednesday as well, showed that primary dealers generally expect nominal coupon auction sizes to rise early next year. They anticipate the Treasury will adjust its forward guidance several quarters ahead of the expected change.

The Treasury also announced it will sell $58 billion in U.S. three-year notes, $42 billion in 10-year notes, and $25 billion in 30-year bonds next week, unchanged from the sizes set at the February refunding.

Zachary Griffiths, head of investment grade and macro strategy at CreditSights in Charlotte, North Carolina, said Treasury’s decision to maintain its forward guidance — signaling that coupon issuance will remain steady at least for the next several quarters — “matched our expectations…to tread lightly given the recent selloff in nominal Treasuries and widening of inflation expectations.”

He added that the department remains willing to rely heavily on Treasury bills, particularly with continued support from Federal Reserve purchases.

INCREASING BILL AUCTION SIZES IN LATE MAY

Treasury said it expects to further increase auction sizes of shorter-dated benchmark bills over the coming weeks in late May, and anticipates issuing a short-dated cash management bill to meet what is likely to be peak liquidity needs at the end of May tied to maturing coupon securities.

However, reflecting projected inflows from mid-month corporate and non-withheld tax receipts, the Treasury expects to modestly reduce short-dated bill auction sizes in June.

For July, Treasury anticipates marginal increases in 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,” the department said.

Treasury is also assuming a $900 billion cash balance at the end of June, as outlined in its financing estimate released on Monday. Based on current projections for the refunding quarter, the Treasury General Account (TGA) — its cash balance held at the Fed — could peak at $1 trillion, plus or minus $50 billion, in late July.

This figure, Treasury said, is consistent with its long-standing cash balance policy and is driven by the large outflows expected to occur at that time.

Separately, Treasury announced that it is modifying settlement timing for 20-year bond reopening auctions. Beginning with the reopening scheduled for June 16, these auctions will settle on the Friday of the auction week, while new issues will continue to settle at month-end.

U.S. 20-year bond reopenings normally settle at the end of the month, not the week after the auction in the way some other coupon auctions do.

The change is consistent with the “feedback provided by a variety of market participants, including the primary dealers,” Treasury said.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrew Heavens and Franklin Paul)