US Tweaks Debt-Sales Guidance, Opening Way to Auction Shifts

The US Treasury revamped the guidance on sales of notes and bonds it has used since early 2024, in a move that may open the door to cuts in the issuance of the longest-dated debt in 2027.

“Based on current projected borrowing needs, Treasury anticipates maintaining nominal coupon and FRN auction sizes for the next several quarters,” the department said in a statement Wednesday. FRNs refers to floating rate notes. Officials had for more than two years said auctions would be unchanged for “at least” several quarters.

Dropping the “at least” qualification brings into view for as soon as 2027 reduced issuance of long-dated debt, potentially balanced with higher sales of shorter-term interest-bearing securities, known as coupons. The Treasury said it “will engage with a variety of market participants to better understand evolving Treasury supply and demand dynamics.”

Most dealers had expected some alteration in guidance to emerge as the latest example of efforts by Treasury Secretary Scott Bessent to temper this year’s rise in longer-term yields. That’s after his shock expansion of the department’s buyback program for outstanding securities just two weeks after the August debt-management plan.

That maneuver failed to halt the rise in yields, with 30-year rates going on to surge to the highest since 2002 last month. The range of views among market participants was wide on what Wednesday’s statement might bring, with some seeing little or no change after yields had come off their early-October highs. Citigroup Inc., however, had predicted cuts in 20- and 30-year sales starting this month.

With the release proving notably less dramatic than the most extreme scenarios, the Treasury curve steepened after the announcement — longer-dated maturities underperformed shorter ones. Dollar swap spreads dipped in the long-end of the curve as traders focused on the tweaks to forward guidance.

“The change in language opens up some future changes, but it’s broadly as we expected,” said John Briggs, head of US rates strategy at Natixis North America. “We didn’t see them altering auction sizes here today.”

The Treasury Borrowing Advisory Committee — a panel of bond investors, dealers and other market participants that the Treasury consults ahead of refunding decisions — said in a statement Wednesday that members had a “meaningful discussion” about potential future changes to 20- and 30-year issuance.

Members “generally agreed” that additional issuance should be concentrated in the 2- to 10-year sector, the statement said.

As for next week’s refunding auctions — totaling $125 billion for the 11th straight time — they will be made up of:

$58 billion of 3-year notes on Nov. 9$42 billion of 10-year notes on Nov. 10$25 billion of 30-year bonds on Nov. 12

Bessent’s sudden expansion of the buyback program in August had spurred questions about whether the Treasury was diluting its longstanding principle of being “regular and predictable” in its management of debt. The TBAC on Wednesday stressed the importance of hewing to that past practice.

The TBAC on Wednesday “emphasized that clear communication alongside a regular and predictable operating framework remains important to help market participants adjust to future changes.”

With regard to the buybacks, the Treasury statement said that upcoming operations for longer-dated Treasuries would have a maximum purchase amount of $6 billion. That’s in line with recent practice, which marked a tripling of previous amounts.

“Treasury will continue to evaluate possible enhancements to buyback operations such as changes to maximum purchase amounts, buyback operation scheduling and frequency, security eligibility, and execution process,” the statement said.

August Tweak

The Treasury had made a subtle shift to its debt-sales guidance at its last refunding statement, on Aug. 5, saying officials were evaluating potential future “changes” in coupon and floating-rate note sales rather than “increases” — opening the door to a future reduction in supply. The “changes” language appeared again Wednesday.

In preparing for Wednesday’s statement, the Treasury used its regular pre-refunding questionnaire of primary dealers to ask about “structural changes in investor demand” for Treasuries, and “what futures changes to auction sizes should Treasury consider.”

Both officials and market participants had noted waning demand for long-dated assets from the likes of defined-benefit pension funds in recent years.

The government is running annual deficits of around $2 trillion, requiring greater and greater Treasury issuance. That’s featured increasing reliance on bills, which mature in up to a year.

However, the ratio of bills to outstanding debt is already above historical norms, and since they must be refinanced at prevailing market interest rates, the nation’s debt-servicing costs are becoming more sensitive to shocks. That’s at a time when the Federal Reserve has hiked its key rate for the first time since 2023, with investors betting on further moves in coming months.

Ever since Bessent’s predecessor, Janet Yellen, established the current guidance about expecting to hold note and bond sales steady for quarters to come, dealers have expected increases to resume in time.

As far back as February 2025, the TBAC recommended that the department remove or modify its forward guidance. In August of this year, they recommended that the “Treasury consider updating its forward-guidance language to preserve flexibility” heading into the 2027 fiscal year.

This week, the TBAC again suggested the department “consider adjusting its forward guidance language.”