Nomura Recommends Across-the-Board Increase in UST Auction Sizes
(Bloomberg) -- Treasury Department should increase coupon auction sizes by $1 billion “on all tenors” as soon as the November refunding “to allow for a gradual and smooth adjustment over time” to Fed balance-sheet roll-offs, Nomura strategists led by George Goncalves wrote in July 21 note.
- Excluding TIPS and FRNs, auction sizes should rise by same $1b pace as Fed raises its cap limits, assuming Treasury also introduces a new long-dated security (20- or 50-year); relying solely on shorter-dated securities “would increase rollover risks as early as 2020”
- Nomura made the recommendation in response to Treasury’s questionnaire to bond dealers for the 3Q refunding
- In response to other questions, Nomura said it expect Fed’s UST holdings will be ~$1.5t when the normalization process is complete “sometime in late 2022”
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