Halister News

(Bloomberg) -- As part of its program to increase issuance to accommodate larger deficits and Fed balance-sheet reduction, Treasury should consider adding a 1-year floating rate note in addition to increasing the size of its 2Y FRN, as “current demand for FRNs is quite strong,” Citi analysts led by Jabaz Mathai say in Aug. 4 note.

• 1Y FRNs “should get strong sponsorship from money market funds,” note says; “lower dealer takedowns” in recent 2Y FRN auctions are evidence of strong demand, Citi strategist Steve Kang added in interview; primary dealers were awarded less than 40% of two of the past four 2Y FRN auctions
• TBAC’s Recommended Financing Table for 4Q calls for increases of $2b in 2Y and 3Y notes and 2Y FRNs, and increases of $1b in all other coupon auctions, starting in November
• This “should put some steepening pressure on the back-end of the curve” and leaves room for further 10Y and 30Y issuance in 2018-2019
• Recommendation to spread issuance across the curve “may also have been done as insurance again ultra-long issuance in the future,” however such issuance is “too early to rule out” based on Treasury’s issuance needs over next few years

To contact the reporter on this story: Anna Windemuth in New York at awindemuth1@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Elizabeth Stanton