Halister News

(Bloomberg) -- Treasury will fund ~$250b of Fed portfolio runoff in 2018 by increasing auction sizes across the curve, beginning as soon as Nov. 1 refunding announcement with a $1b increase in the monthly 3Y auction to $25b, TD strategists led by Priya Misra say in note.

• Treasury will concentrate the increases in tenors out to 5Y; 10Y and 30Y auction sizes are unlikely to be increased until after other sub-5Y tenors have been adjusted
  • Treasury has “plenty of room in short-dated coupons,” where auction sizes have been cut more steeply from 2009 peak levels; 2Y, for example, was reduced to $26b from $44b
  • Bill auction sizes also have ample potential for growth, though Dec. 8 reinstatement of debt ceiling should prevent “any immediate jump in bill auction sizes”
• Supply expectations favor 5s30s flatteners and 5y swap spread tighteners
• Ultra-long bonds are unlikely to be revisited unless deficits widen sharply, perhaps due to tax cuts

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net Greg Chang