Citi's latest analysis suggests a bullish outlook for U.S. Treasuries as the Treasury Department is expected to maintain nominal coupon sizes at the upcoming February refunding meeting. The report, dated January 24, 2025, highlights that the Treasury's reliance on T-bills is likely to continue, with no immediate need to increase coupon auction sizes. "We expect continued guidance for nominal coupon sizes to remain constant for several quarters," Citi analysts note, emphasizing the potential for a stable T-bill share in the short term.
Citi remains slightly bullish on duration, citing the high term premium and the expectation that the Federal Reserve will not hike rates in 2025, which should keep yields anchored. The report also points to a potential increase in the Treasury's buyback program as a low-risk scenario that could further support the market. Additionally, foreign private demand for U.S. Treasuries has slowed, with a net increase of only $4 billion in November, reflecting a cautious stance amid recent market volatility. As the Treasury prepares for its February 5 policy statement, Citi's analysis underscores the importance of monitoring T-bill strategies and their implications for the broader fixed-income market.