There were no surprises in the Treasury's announcement of the quarterly refunding of $47.3 billion with a $62 billion issuance package that will raise $14.7 billion in new cash. As in the previous 6 quarters, the refunding package consists of $24 billion in 3-year notes, $23 billion in 10-year notes and $15 billion in 30-year bonds. The Treasury plans to maintain coupon issuance at current levels over the coming quarter, with the balance of seasonal borrowing needs to be met by changes in weekly T-bill auctions and the issuance of cash management bills. Funding needs will also be met by the August 5-year Treasury Inflation-Protected-Securities (TIPS) reopening auction, the September 10-year TIPS reopening auction, the October 30-year TIPS reopening auction, and the regular monthly 2-year Floating Rate Note (FRN) auctions.
Pointing to the Federal Open Market Committee's (FOMC) June statement and Addendum to the Committee's Policy Normalization Principles and Plans signaling expectations for gradual changes in the Federal Reserve's reinvestment policy for its System Open Market Account (SOMA) portfolio, the Treasury said its net marketable borrowing over the coming years will be affected as a result, specifically that it would likely need to increase the amount of borrowing to fund the SOMA redemptions. The Treasury will likely respond to the additional borrowing needs associated with SOMA redemptions by increasing both Treasury bill and nominal coupon issuance sizes, beginning with bills and then coupons.
The Treasury also reiterated that it is critical for Congress to act promptly to increase the nation's borrowing authority, noting that the Treasury has been taking extraordinary measures to finance the government on a temporary basis since March 15, when the suspension of the debt limit by the Bipartisan Budget Act of 2015 expired. Based on available information, the Treasury said it expects to be able to fund the government through September 1.