The upcoming US Treasury quarterly refunding, led by Scott Bessent, is poised to capture the attention of bond traders, particularly regarding potential changes in forward guidance. While issuance sizes for the first quarter are expected to remain stable, any adjustments or omissions in forward guidance could significantly impact market sentiment. The Treasury has consistently stated that it does not anticipate increasing nominal coupon or FRN auction sizes for several quarters, but Bessent has criticized this approach, suggesting it may render the Treasury borrowing committee obsolete. If forward guidance is removed, investors might brace for increased Treasury issuance, potentially leading to a bearish outlook for longer-term Treasuries due to supply concerns.
Additionally, the Treasury's cash balance policy is under scrutiny, with potential reductions possibly saving taxpayer money and decreasing short-term debt issuance. This could lead to higher prices for existing short-term Treasuries due to reduced supply. The steady issuance sizes for the upcoming refunding auctions, including $58 billion of 3-year notes, $42 billion of 10-year notes, and $25 billion of 30-year bonds, suggest a stable supply outlook in the near term, maintaining the current demand-supply balance.
The Direxion Daily 20+ Year Treasury Bull 3X Shares ETF (TMF), which aims to provide triple the daily performance of the ICE U.S. Treasury 20+ Year Bond Index, is currently trading at $42.28 as of 08:12 on February 5, reflecting market reactions to these potential policy shifts.