There were no surprises in the Treasury's announcement of the quarterly refunding of $42.7 billion of Treasury notes maturing on November 15, 2017, a $62 billion package that will raise $19.3 billion in cash. As in the previous 7 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 balance of funding needs will be met with the weekly T-bill auction auctions, cash management bills, the monthly note and bond auctions, the November 10-year Treasury Inflation-Protected Securities (TIPS) reopening auction, the December 5-year TIPS auction, the January 10-year TIPS auction and regular monthly 2-year Floating Rate Note (FRN) auctions. 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.
With regard to increased borrowing needs resulting from the announced changes in the of the Federal Reserve's reinvestment policy for its SOMA portfolio and its gradual reduction, the Treasury said that it will meet these needs by increasing the T-bill supply, and that it anticipates announcing gradual adjustments to its coupon and 2-year FRN auction sizes at the February 2018 refunding. Based on current forecasts, the Treasury said these adjustments will result in the stabilization of the weighted average maturity of debt outstanding at current levels, barring unexpected large changes in borrowing needs.
Pointing to the suspension of the debt limit through December 8, 2017 under the Continuing Appropriations Act, 2018, and the Supplemental Appropriations for Disaster Relief Requirements Act, 2017, the Treasury stated that if Congress fails to increase or further suspend the debt limit by December 8, it will take certain extraordinary measures that will allow the government to meet its obligations through January 2018.
The Treasury noted it intends to conduct a small-value buyback operation to continue testing its buyback infrastructure. The operation, which will be announced at a later date, should not be seen as a precursor or signal to pending policy changes regarding the Treasury's use of buybacks.