Treasurys Gain, Curve Flattens After Refunding Auction Sizes Remain Unchanged

When previewing today’s FOMC announcement, we said that at least according to some, this morning’s refunding announcement may have a bigger impact on the market as there is less consensus (and more confusion) about what would be unveiled. As JPM analyst Jay Barry told Bloomberg, the quarterly refunding announcement at 8:30am ET Wednesday ‘has the possibility to be a bigger event for markets in the morning than the Fed statement in the afternoon’ as participants are divided on whether the Treasury will announce increases to coupon auction sizes Wednesday, or wait until the 1Q refunding announcement in February:
‘There’s a dispersion of views because of the pivot the Treasury Department has had over last few years,’ specifically toward portfolio metrics and aiming to extend the weighted average maturity of the portfolio. Merely reversing the cuts that have been made to 2Y and 3Y auctions since 2013 wouldn’t serve that objective. ‘If they don’t get announced tomorrow, it’s a muted rally, and if they do, it’s a muted steepening.’
Furthermore, as Bloomberg summarizes, going into today’s announcement, market participants were divided leading into the announcement with most seeing no increase immediately to auction sizes just yet, seeing only bill auction changes for now: Barclays, NatWest, Bank of America, Credit Agricole, Jefferies, Stone & McCarthy Research Associates and Citigroup all saw no change; JPMorgan Chase, among other, looked for small increases across maturities.
Well, moments ago the US Treasury reported the breakdown of the refunding auctions, which led to Treasuries promptly paring some early losses (and leading to the predicted muted curve flattening) after the Treasury Department maintained its coupon auction sizes over the next three months, while the refunding statement did not comment on ultra-long issuance.

This post was published at Zero Hedge on Nov 1, 2017.

 

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