Quarterly Refunding Statement of Deputy Assistant Secretary for Federal Finance Brian Smith

May 4, 2022 / Source: Treasury

WASHINGTON — The U.S. Department of the Treasury is offering $103 billion of Treasury securities to refund approximately $47.8 billion of privately-held Treasury notes maturing on May 15, 2022.  This issuance will raise new cash of approximately $55.2 billion.  The securities are:

–     A 3-year note in the amount of $45 billion, maturing May 15, 2025;
–     A 10-year note in the amount of $36 billion, maturing May 15, 2032; and
–     A 30-year bond in the amount of $22 billion, maturing May 15, 2052.

The 3-year note will be auctioned on a yield basis at 1:00 p.m. ET on Tuesday, May 10, 2022.  The 10-year note will be auctioned on a yield basis at 1:00 p.m. ET on Wednesday, May 11, 2022.  The 30-year bond will be auctioned on a yield basis at 1:00 p.m. ET on Thursday, May 12, 2022.  All of these auctions will settle on Monday, May 16, 2022.  

The balance of Treasury financing requirements over the quarter will be met with weekly bill auctions, cash management bills (CMBs), and monthly note, bond, Treasury Inflation-Protected Securities (TIPS), and 2-year Floating Rate Note (FRN) auctions.

PROJECTED FINANCING NEEDS AND ISSUANCE PLANS

Since November 2021, Treasury has made substantial progress towards aligning issuance with intermediate-term borrowing needs by reducing auction sizes across all nominal coupon securities.  During this period, we have also received important information regarding Treasury’s projected borrowing needs, most notably recent strong tax receipts and public communications from the Federal Open Market Committee regarding potential redemptions of Treasury securities from the Federal Reserve System Open Market Account (SOMA).  Based on this updated information, Treasury intends to continue reducing auction sizes of nominal coupon securities during the upcoming May – July 2022 quarter, though by smaller increments than in previous quarters.  While the issuance plans announced today leave Treasury well positioned to finance additional privately-held net marketable borrowing needs resulting from potential SOMA redemptions and to address potential changes to the fiscal outlook, additional reductions in future quarters may be necessary depending on future developments in projected borrowing needs. 

Treasury plans to address any seasonal or unexpected variations in borrowing needs over the next quarter through changes in regular bill auction sizes and/or CMBs.

NOMINAL COUPON AND FRN FINANCING

Over the next three months, Treasury anticipates incrementally reducing the size of each of the 2-, 3-, and 5-year note auctions by $1 billion per month.  As a result, the size of the 2-, 3-, and 5-year note auctions will each decrease by $3 billion by the end of July.  Treasury also anticipates reducing the size of the 7-year note auction by $2 billion per month.  As a result, the size of the 7-year note auction will decrease by $6 billion by the end of July.

Treasury anticipates decreases of $1 billion to both the new and reopened 10-year note auction sizes and to the new and reopened 30-year bond auction sizes starting in May.  Treasury also anticipates decreases of $2 billion to both the new and reopened 20-year bond auction sizes starting in May.

In addition, Treasury anticipates maintaining the May and June reopening 2-year FRN auction sizes and maintaining the July new issue 2-year FRN auction size.

The table below presents the anticipated auction sizes in billions of dollars for the May – July 2022 quarter:

The changes in nominal coupon auction sizes announced today will result in a $69 billion reduction of issuance to private investors during the May – July 2022 quarter compared to the February – April 2022 quarter.

TIPS FINANCING 

Over the next refunding quarter, Treasury intends to maintain the May 10-year TIPS reopening auction size at $14 billion; increase the June 5-year TIPS reopening auction size to $18 billion, a $1 billion increase from the December reopening auction size; and increase the July 10-year TIPS new issue auction size to $17 billion, a $1 billion increase from the January new issue auction size.  Given Treasury’s desire to stabilize the share of TIPS as a percent of total marketable debt outstanding and continued robust demand, Treasury will continue to monitor TIPS market conditions and consider whether subsequent modest increases would be appropriate.

INTRODUCTION OF THE 4-MONTH BILL BENCHMARK

Given the outlook for T-bill supply over the intermediate to long term and after gathering feedback from a variety of market participants, including the primary dealers and the Treasury Borrowing Advisory Committee, later this year Treasury intends to change the 4-month (i.e., 17-week) CMB into a benchmark bill (part of the regular weekly bill issuance schedule going forward).  Investor reception to the 4-month CMB has been strong, and elevation to benchmark status will further support demand.

Over the coming months, Treasury plans to make necessary operational and systems changes in order to smoothly transition the 4-month CMB to benchmark status.  During this transition, Treasury will continue to issue the 4-month CMB at a regular cadence.  Treasury also intends to maintain the Tuesday settlement and maturity cycle when the 4-month CMB becomes a benchmark bill.  Additional implementation details, including the likely timing of the first benchmark auction, will be provided at the August quarterly refunding.

ADDITIONAL PUBLIC TRANSPARENCY

Treasury, in consultation with other members of the Inter-Agency Working Group on Treasury Market Surveillance (IAWG), is exploring the possibility of additional public transparency for secondary market transactions of Treasury securities.^[1]  Additional public transparency may enhance liquidity by fostering a greater understanding of market activity across market segments.  Public data releases should also be designed to avoid creating disincentives for providing liquidity.  To gather public input on this topic, Treasury intends to issue a request for information (RFI) on the potential benefits and risks of specific steps that could be taken to provide additional transparency in the Treasury securities market.  Treasury expects to release the RFI in the coming months and encourages market participants and the broader public to respond.

Treasury is also in consultation with the Financial Industry Regulatory Authority (FINRA) regarding potential ways to enhance the reporting of transactions to FINRA and the public release of weekly aggregated data.

AMENDMENTS TO TREASURY AUCTION REGULATIONS

In the coming months, Treasury intends to issue a final rule that makes several technical amendments to the Uniform Offering Circular (UOC), which governs the terms and conditions for the sale and issuance to the public of marketable Treasury securities.  These amendments are designed to modernize the regulations, enhance their clarity, and improve consistency in the use of terminology.  As part of these amendments, Treasury intends to increase the non-competitive bidding and award limits for all marketable Treasury securities auctions from the current limit of $5 million to $10 million, considering the growth in auction sizes and inflation over several decades. 

SMALL-VALUE CONTIGENCY AUCTION OPERATION TEST

Treasury believes that it is prudent to regularly test its contingency auction infrastructure.  Treasury’s contingency auction system has been used routinely over the last several years to conduct both mock auctions and live small-value test auctions.  Sometime over the next three months, Treasury intends to conduct a small-value test auction using its contingency auction system.  Details about this test will be announced at a later date.

This small-value test auction should not be viewed by market participants as a precursor or signal of any pending policy changes regarding Treasury’s auction processes.

LARGE POSITION REPORT (LPR) CALL AND WORKSHOP

Sometime over the next three months, Treasury intends to issue an LPR call.^[2]  Treasury last conducted an LPR call on July 15, 2021.

Additionally, Treasury is offering a free virtual workshop on June 10, 2022, regarding Treasury’s LPR rules, which apply to all U.S. and foreign entities that may control a large position in a specified Treasury security.  More information about the workshops is available.

Please send any comments or suggestions on these subjects, or others related to debt management, to [email protected].

The next quarterly refunding announcement will take place on Wednesday, August 3, 2022.