As part of the Treasury’s Q3 refunding announcement, which as discussed earlier sent 30Y yields to session lows after it failed to either boost upcoming debt issuance or mention ultra-long dated bonds, the Treasury Borrowing Advisory Committee or TBAC, a select group of bankers from Wall Street’s biggest firms tasked with providing periodic guidance to the Treasury, released its latest presentation, whose topic this quarter was “Normalization of SOMA Portfolio“, or a breakdown of i) how Wall Street expects the Fed’s balance sheet reduction will play out from a chronological and structural basis, ii) how treasury issuance will be impacted as a result, and most importantly, iii) the expected impacts on markets.
The full agenda was as follows:
1. Expectations for balance sheet normalization
When will Fed start phasing out Treasury holdings? What will be the size of Treasury holdings once the Fed balance sheet is normalized? 2. How will the Fed distribute eventual Treasury purchases across maturities?
Expectations for resulting Treasury issuance How large will Treasury’s financing needs be? When should Treasury start increasing auction sizes? What will be the impact on auction stop-out rates? What is the recommended distribution across tenors for higher financing needs?
This post was published at Zero Hedge on Aug 2, 2017.
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