Some big Wall Street banks are expecting next week’s refunding announcement by the Treasury to reflect the government’s large and ongoing borrowing needs.
Treasury’s heavy borrowing is one of the most important factors behind the recent, steep run-up in long-term yields, which reached their highest levels since 2007 last week. Since July, 10- BX:TMUBMUSD10Y and 30-year yields BX:TMUBMUSD30Y have each jumped by a full percentage point or more as traders fret over the onslaught of supply for Treasurys, the U.S. government’s fiscal trajectory, and the risks of holding long-dated government debt to maturity.
Deutsche Bank’s forecast calls for a slight moderation of increases in 10- to 30-year maturities relative to the last refunding quarter. Still, Zeng said his bank expects Treasury to announce $749 billion of borrowing for the fourth quarter and $822 billion for the first quarter of 2024. “Given this backdrop, Treasury’s current auction schedule is insufficient to meet its prospective financing needs,” the JPMorgan team wrote in a note this week. The “funding gap remains large in the coming years,” even after last quarter’s increases.