‘We are running outsized deficits for an economy at full employment,’ said Gregory Faranello, head of U.S. rates for AmeriVet Securities in New York. ‘This has market participants concerned.’
Heavy U.S. government borrowing has the potential to take investors’ attention away from the Federal Reserve’s policy update on Wednesday.
Treasury yields ended higher on Monday just as Treasury announced a fourth-quarter borrowing estimate of $776 billion. In two days, the department’s quarterly refunding statement and details of upcoming auction sizes are set to be released. Treasury uses the refunding process, based on calendar quarters, to spell out its borrowing needs and detail its plans for note and bond auctions. It begins by first gathering advice from primary dealers, as well as its own Treasury Borrowing Advisory Committee. Then, any changes in the department’s debt-management policy, based on that advice and its own analysis, are announced through quarterly refunding statements and made public by a Treasury official.
In general, “we are running outsized deficits for an economy at full employment,” AmeriVet’s Faranello wrote in an email to MarketWatch on Monday. “This has market participants concerned … The focus will be on overall cash needs and then where the Department of Treasury chooses to emphasize issuance on the curve.”
An auction that goes well has the potential to ignite buying of government debt generally, which was the case last Thursday when a solid $38 billion sale of 7-year notes led to an extended rally. Conversely, soft auctions met with lackluster demand can reinforce selling, as happened in August after the market struggled to absorb a $23 billion auction of 30-year bonds.
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