US: Will Temporarily Suspend Issuance of Interest-Bearing Treasury Bonds This Year

■ The U.S. Treasury Department announced its latest marketable borrowing estimates, maintaining the current issuance scale of interest-bearing Treasury bonds.  

■ Guidance on future issuances remains unchanged, with the current auction scale expected to be maintained throughout the year. 
 
The U.S. Treasury Department released its latest marketable borrowing estimates on the 4th. It plans to raise $189 billion in the April-June quarter and $671 billion in the July-September quarter. The financing amount for the April-June quarter is revised upward from the $109 billion announced in February. Although the plan aims to maintain the cash balance at the end of June ($900 billion) at roughly the same level as at the end of March ($893 billion), the need for funds has increased significantly due to higher-than-expected military spending caused by the military strikes against Iran since the end of February. The Treasury Department plans to increase the cash balance to $950 billion by the end of September. The financing scale for the July-September quarter is significantly larger than that for the April-June quarter. However, because the April-June quarter typically sees reduced market financing due to tax inflows, the financing scale for the July-September quarter has remained relatively low since 2022.  

    On the 6th, the Treasury Department released its Quarterly Refunding Statement based on the plan mentioned above. To repay approximately $83.3 billion in privately held U.S. Treasury securities maturing on May 15th, the Treasury will issue $125 billion in U.S. Treasury securities (3-year, 10-year, and 30-year maturities) between the 11th and 13th. Furthermore, the issuance size of interest-bearing Treasury bonds up to July will remain at the same level across all maturities as in the February-April quarter. Although the market is concerned about the possibility of future increases in interest-bearing Treasury bond issuance, the guidance in the statement remains unchanged: "The Treasury will maintain the auction size of nominal interest-bearing Treasury bonds and floating-rate Treasury notes (FRNs) for at least the next several quarters." This means that the issuance size of medium- and long-term interest-bearing Treasury bonds will also continue to be the same in the August-October quarter. The Treasury Department also stated that it "will adjust the size of short-term Treasury bond auctions to address seasonal and unforeseen changes in financing needs in the next quarter." The current market focus is on when and how the phrase "at least several quarters," implying that issuance will remain unchanged for at least the next two quarters, will be revised. 
 
With the outbreak of the Iranian conflict, market concerns about accelerating inflation have intensified, leading to weak demand for medium- and long-term US Treasury bonds. On the other hand, with the Federal Reserve (FRB) resuming asset purchases, demand for short-term US Treasury bonds through the New York Fed's System Open Market Account (SOMA) is expected to increase. US Treasury Secretary Bessent favors maintaining stable long-term US interest rates and increasing the proportion of long- and ultra-long-term Treasury bond issuance, but the current supply-demand balance for US Treasury bonds remains relatively better for short-term bonds. Given the declining confidence of overseas investors in US Treasury bonds and the US dollar, the US Treasury lacks the incentive to hastily increase the issuance of long- and ultra-long-term Treasury bonds.