The U.S. Treasury will borrow more, but long-term issuance stays flat

The U.S. government issues Treasury bonds when tax revenue does not cover spending. A Treasury bond is a government debt certificate, and the Treasury yield is the cost of borrowing that money. The Treasury's quarterly borrowing plan, or refunding, is the schedule that tells the market how much it plans to borrow in the coming months and across which maturities. This schedule matters because it shows not only the total debt but also how the government will raise the money. If the amount to be borrowed grows, the supply of Treasuries reaching the market can grow as well, and investors may demand a higher yield to absorb it. The amount issued in long maturities such as 10-year and 30-year bonds can matter for long-term yields and for how stocks are valued. As the earlier card explained, this announcement was the next test of whether the rise in Treasury yields could be explained by oil alone. Meru has now updated what the Treasury chose to do in its August 5 statement. The Treasury estimated $739 billion of borrowing in the third quarter, $68 billion more than its May estimate. Its fourth-quarter estimate was $628 billion.

Long-term auction sizes did not increase, however. In its August refunding statement, the plan to replace maturing debt with new debt, the Treasury kept the 3-year, 10-year, and 30-year auction sizes at $58 billion, $42 billion, and $25 billion. It offered $125 billion of securities, but $96.3 billion of that refinanced securities maturing on August 15. The new cash raised was about $28.7 billion.

The total borrowing estimate and long-term supply therefore need to be read separately. The Treasury is borrowing more, but it is not immediately enlarging the basic size of long-term auctions. It can adjust short-dated Treasury bills and cash-management bills to cover part of the financing need. That can delay a sudden wave of long-term supply into the market, but it does not remove the government's debt burden.

The room left by one word

The Treasury said it would keep regular coupon and floating-rate bond auction sizes unchanged for at least the next several quarters. At the same time, the May statement's wording about evaluating possible "increases" in future auction sizes became wording about possible "changes" in August. Long-term issuance is not being increased now, but the language leaves room to adjust it if funding needs grow after 2027.

The next checks are the 3-year, 10-year, and 30-year auctions scheduled for August 11-13 and the next quarterly borrowing plan on November 4. The question is whether long-term auction sizes remain unchanged, how much short-term bill issuance rises to fill the gap, and whether the word "changes" turns into an actual increase.