‘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 is in focus this week, with the potential to take investors’ attention away from the Federal Reserve’s policy update on Wednesday.
Treasury yields broadly jumped on Monday ahead of a 3 p.m. Eastern time announcement by Treasury of its fourth-quarter financing estimate. That’s set to be followed in two days by the department’s quarterly refunding statement and details of upcoming auction sizes. 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.
The financing estimate released on Monday is expected to provide the market with a broad overview of the amount of borrowing needed for the months ahead. In July, Treasury had estimated that it would need to borrow $852 billion in privately held net marketable debt between October and December, assuming an end-of-cash balance of $750 billion.
The continued onslaught of supply from Treasury has raised questions about whether U.S. and foreign buyers can continue to keep up demand for government debt. One issue that’s been raised is whether the absence of large buyers insensitive to underlying prices, like the Fed, might lead to a period where demand dries up — pushing yields even higher.
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