The upcoming release of the US Treasury's US Treasury bond issuance plan is a key event that global bond traders focus on every quarter, but it now appears to be a politically sensitive event, with some Republicans frequently accusing the Biden administration of manipulating the US Treasury's issuance strategy. According to many investment banks such as Bank of America and Goldman Sachs, given the continuous deterioration of the US government's deficit expectations, the Treasury Department may have to modify future bond issuing guidelines, and raising debt expectations will undoubtedly trigger various maturity premiums. The yield of US Treasury bonds, especially the yield of various short-term US bonds.

On Wednesday, bond traders generally expected the US Treasury Department to follow its previously announced US debt issuance guidelines in its so-called quarterly refinancing announcement, and to maintain its long-term US debt issuance scale in stable condition for two consecutive quarters.

However, some Republican politicians and economic policy commentators have accused Treasury Secretary Janet Yellen and her team of artificially adjusting the issuance scale of these long-term securities and choosing to use short-term debt called bills to meet additional funding needs. They believe it is part of an effort to depress the yield curve of US Treasury bonds, boost the economy, and benefit Democratic wealth before the election.

In response, Yellen said last Friday that the US Treasury Department has no such strategy for trying to alleviate the financial situation. Josh Frost, who is responsible for federal bond issuance, gave a detailed speech earlier this month explaining all aspects of the issuance of US Treasury bonds, showing how the department's decisions are made within normal range and emphasizing compliance with market participants' expectations and suggestions.

However, in recent years, the borrowing needs of the US federal government have been huge, and US Treasury bond buyers are looking for any possible signs of a larger-scale long-term US Treasury bond sale that the Treasury Department may soon conduct. The department stated in May that the currently high scale of bills and US Treasury auctions may be "very sufficient for at least the next few quarters."

"We expect that the Treasury Department will not change their previous guidelines now, because they can continue to use bond issuance to deal with additional funding needs." Jason Williams, interest rate strategist for Citigroup Inc., said.

It is understood that the Treasury Department's bill maturity is very short, with a maximum holding period of one year, and its price and yield are closely related to the benchmark interest rate set by the Federal Reserve and the expectation of near-end interest rates. With inflation rates slowing significantly in recent months, it is generally expected that Fed officials will signal at the next monetary policy meeting that ends on Wednesday afternoon Eastern Time that they will raise interest rates for the first time after starting an interest cycle in September. Lower expectations for benchmark interest rates will help reduce the total cost of US Treasury bonds, and the total cost of US Treasury bonds in recent years has increased as a proportion of the Treasury Department's outstanding debt.

Williams said that relying on bills at present "makes sense because they will benefit more from Fed interest rate cuts than long-term US bond assets." Therefore, the US Treasury Department will of course continue to support bills."

If the Treasury Department maintains its current issuing guidelines without incident, it means that the Treasury Department will announce a new refinancing debt sales plan on Wednesday-consisting of 3-year, 10-year, and 30-year US Treasury bond assets, these The total scale of the issuance of assets is expected to reach 125 billion US dollars again. The Treasury Department's issuance plan is as follows:

Issued on August 6th, with a scale of 5.8 billion US dollars for 3-year US Treasury bonds

Issued on August 7th, with a scale of 4.2 billion US dollars for 10-year US Treasury bonds

Issued on August 8th, with a scale of 2.5 billion US dollars for 30-year US Treasury bonds

Although many participating institutions in US debt issuances expect that the guidelines in May will be replayed, that is, short-term bills and auctions of bonds with a holding period of more than one year will remain stable in the coming quarters, and it is expected that the US Treasury Department may modify the guidelines. Among many large investment banks including but not limited to Barclays Bank, Bank of America, and Goldman Sachs, given the continuous deterioration of the US government's deficit expectations, the Treasury Department may modify the guidelines.

"Recently, the Treasury Department has clearly had more solutions, and they will issue more bills." Megan Swoboda, a US interest rate strategist at Bank of America, said, "But in Wednesday's guidelines, the Treasury Department may slightly change the wording, implying that the Treasury Department may have to consider increasing the supply of bills in the next few quarters."

The US deficit is at a historical high during the current economic expansion period - although employment and GDP growth are increasing, the budget deficit has hardly narrowed in recent years.

Some participants in the US Treasury market believe that managing expectations for future growth can help avoid negative impacts on financial markets when US government officials have to sell more long-term debt in the future.

According to the US deficit situation, US Treasury debt may eventually need to be expanded at a more aggressive pace. "We believe the prudent approach is to adjust guidance to allow the market to begin pricing in debt increments earlier," wrote Ashutosh Pandey, head of US rate strategy at Barclays Bank.

Yellen's Treasury team previously slowed the issuance plan of US long-term bonds in November and relied more on bill issuance. Treasury officials and market participants generally believe that bills are a way to cushion borrowing and will continue to increase as a proportion of the outstanding debt.

Recently, this ratio of bills to the outstanding US debt has exceeded the previously predicted range of 15-20% recommended by the Treasury Borrowing Advisory Committee (TBAC), which is composed of investors, US bond traders and other market participants. However, TBAC has said that the Treasury has a "flexible" position on the recommendation.

Since the beginning of last year, the supply of bills has increased by about $2.2 trillion​​ and investors seem to be indifferent to this, even when other types of risk-free yields are higher, they will still rush to buy bills.

The initial TBAC proposal was made in 2020, when short-term US bond yields had not risen sharply, and the rise of short-term US bond yields helped push the market demand for bills to grow. Jay Barry, co-head of US rate strategy at JPMorgan, said the Treasury and TBAC may reconsider the 15%-20% basic framework at some point.

"In the upcoming quarterly refinancing announcement, the current face value of auctioned bonds is unlikely to increase because additional bond issuance will meet higher borrowing needs. Bloomberg Economics' baseline forecast is that the deficit for fiscal year 2024 will be about $1.85 trillion, but the relatively stable scale in the remaining time we predict may be around $1.9 trillion." said economists Ella Zhou and Will Hoffman from Bloomberg Intelligence.

Barclays Bank expects that the net increase in US bond issuance in 2024 will be about $600 billion, and will be significantly reduced to $300 billion in 2025.

The cost of bill issuance may begin to decline in a few weeks. Swap traders are pricing in the Fed's September rate cut, with 100% already pricing in the expected 25 basis points reduction in September, and continuing to price in the expected 25 basis points reduction in December and a recently rising expectation of a 25 basis points reduction in November.

At the same time, US bond traders expect the Treasury Department to maintain a stable trend in floating rate bond issuance for the next three months. Treasury Inflation-Protected Securities (TIPS) issuance is the only potential category of debt growth that traders predict.

Before the latest refinancing measure, the US Treasury will release an updated wording of the quarterly borrowing needs on Monday afternoon Eastern Time, which will provide a new benchmark for measuring the growth of fiscal revenue. Lou Crandall of Wrightson ICAP LLC believes that assuming the end-of-quarter cash balance remains unchanged, the quarterly borrowing needs for the quarter ending in September may be reduced from $847 billion to $760 billion.

One key number worth paying attention to in this latest release is the year-end forecast benchmark for cash balance, which may affect how much debt buffer space this government department has before the deadline for the effective date of next year's US federal debt ceiling.