There were no surprises in the Treasury's announcement of the quarterly refunding, a $73 billion package to refund $39.1 billion of Treasury notes maturing May 15, 2018 and raise $33.9 billion in new cash. The refunding package consists of $31 billion in 3-year notes, $25 billion in 10-year notes, and $17 billion in 30-year bonds. The balance of funding needs will be met with the weekly T-bill auctions, cash management bills, the monthly note and bond auctions, the May 10-year Treasury Inflation-Protected Securities (TIPS) reopening auction, the June 30-year TIPS reopening auction, the July 10-year TIPS auction, and the regular monthly 2-year Floating Rate Note auctions.
Treasury announced it will further increase the auction sizes of its coupon offerings during the quarter due to higher borrowing needs resulting from changes to the Federal Reserve's reinvestment policy for its System Open Market Account (SOMA) portfolio as well as the fiscal outlook. The auction sizes of the 2-year and 3-year notes will be increased by $1 billion per month each over the next three months, and the sizes of the 2-year FRN, 5-year note, 7-year note, and 30-year bond auctions will be increased by $1 billion each during the May issuance. In total, these changes will result in $27 billion more in new issuance over the next 3 months, a smaller increase than the $42 billion of additional new issuance during the last 3 months.
Treasury said that following the previous quarter's increase in treasury bill supply, which peaked in March in response to elevated borrowing needs, a modest decrease in its treasury bill supply for the remainder of the fiscal year is expected.
Treasury also announced it intends to introduce a new 2-month bill later in the calendar year, and that it is evaluating the addition of a second new 5-year TIPS security to the annual TIPS calendar. Currently, the Treasury offers one new 5-year TIPS security each year in April, followed by reopenings in August and December.
Finally, Treasury said it will conduct a small-value buy-back operation in May to test its buyback infrastructure, which should not be viewed as a precursor or signal of any policy changes regarding the Treasury's use of buybacks.