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: U.S. Treasury to auction $110 billion next week in refunding, down $10 billion from last quarter

The refunding: As part of its regular quarterly refunding, the U.S. Treasury announced Wednesday it would sell $110 billion in notes and bonds next week. That’s down from $120 billion last quarter.

The department will auction $50 billion of 3-year Treasury notes on Feb. 8, $37 billion of 10-year notes on Feb. 9, and $23 billion of 30-year bonds on Feb. 10.

Big picture: The Treasury took another step in its plan to reduce the size of its coupon auction sizes. Meanwhile, the outlook on bill issuance in the second half of this year remains unclear and is somewhat dependent on what the Federal Reserve intends to do with its current $326 billion in bill holdings.

The government has excess borrowing capacity after the response to the pandemic ballooned the deficit from $1 trillion in fiscal year 2019 to close to $3 trillion for the past two years. 

Reducing coupon auctions: Treasury announced it will reduce nominal coupon issuance by $111 billion during the February – April quarter.

The department said it would reduce the sizes of 2-year, 3-year, and 5-year notes by $2 billion per month over the quarter. Treasury will also reduce the size of the 7-year note by $3 billion per month over the same period. 

Treasury expects to reduce the size of the new and reopened 10-year Treasury note auction and the new and reopened 30-year bond auction by $2 billion each starting in February.

Treasury will reduce the new and reopened 20-year bond auction sizes by $4 billion each. 

Treasury will reduce the February and March floating-rate note reopening auction sizes by $2 billion to $22 billion. The size of the next new-issue 2-year floating rate note in April by $2 billion to $24 billion. 

TIPS financing: Treasury expects to increase the April 5-year TIPS new issue auction size by $1 billion to $20 billion. Longer-term TIPS auction sizes will remain unchanged.

Bill issuance: Treasury is actively evaluating whether to change the 17-week cash management bill to “benchmark status.”

In addition, Treasury is looking at how any Fed decisions on the central bank’s balance sheet might affect bill-issuance needs, Brian Smith, deputy assistant secretary for federal finance, told reporters on Wednesday. The central bank — which has signaled a readiness to begin shrinking its nearly $9 trillion portfolio — is just one of several uncertainties “we continue to monitor to determine how our financing needs may evolve,” according to Smith. “There are a number of uncertainties we’re trying to understand and evaluate.”

Vivien Lou Chen contributed to this story

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