US Treasury shifts language, opening door to auction size changes

The move follows a bruising bond selloff last month that pushed 10- and 30-year Treasury yields to their highest levels since 2002.

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Treasury dropped the term "at least" in its guidance, stating that it expects to keep floating-rate note and coupon auction sizes unchanged "for the next several quarters." Many analysts interpret "several" to mean two quarters, which would mean possible changes in the first half of 2027.

The 20- and 30-year auctions, which have at times struggled to attract demand, are seen as the most likely to be cut. Coupon increases would probably be concentrated in the 2- to 7-year sector, and possibly in 10-year notes.

Speculation about future auction size cuts was sparked in August when Treasury said that it continued to evaluate potential future changes to its coupon and floating-rate auction sizes. That was a change from its May refunding announcement, which had pointed to possible increases.

Not everyone expects cuts to longer-dated debt, though, and Treasury may struggle to reduce auction sizes if its funding needs grow faster than expected. Outstanding Treasury debt has more than doubled over the past decade, from $14 trillion to $33 trillion.

The Treasury also said it will evaluate potential future changes to auction sizes based on trends in structural demand and the potential costs and risks of various issuance profiles.

This will include the Treasury engaging with market participants to better understand evolving Treasury supply and demand dynamics, and the government will seek financing at the lowest cost over time.

The Treasury said it will convert the 7-year Treasury into a quarterly auction with two reopenings. It will also expect to cut short-term bill auction sizes in December, and raise them across the bill curve in January based on seasonal fiscal outflows.

It expects to buy back up to $70 billion in Treasuries across the curve for liquidity purposes and will continue to evaluate possible enhancements to the buyback operations such as changes to maximum purchase amounts.

The Treasury said it will sell $125 billion next week. This will include $58 billion in 3-year notes, $42 billion in 10-year notes and $25 billion in 30-year bonds.