Investment US

Treasury quarterly refunding: steady supply

06 February 2025 • 4 mins read

US Secretary of Treasury, Scott Bessent. AFP.

The US Treasury department announced no changes to its issuance plans for the next several quarters. Markets reacted positively as this suggests issuance supply will remain steady for the rest of 2025.
For 2026, we believe the US Treasury will face a funding gap if it continues with the same cadence of issuance. Along with uncertainty of US’ fiscal trajectory, this indicates that an increase in issuances will be needed to plug the funding gap.
Higher deficits and increased supply needs could see investors demanding a higher term premium. We maintain an Underweight recommendation on US Treasuries (UST) and expect 10Y UST yields to reach 5% over the next 12 months.

The US Treasury department announced its quarterly refinancing plans for the Feb to Apr 2025 quarter. The Treasury further indicated that it anticipates maintaining nominal coupon auction sizes for “at least the next several quarters”.

Bond market reacted positively as this suggest issuance may stay steady for the rest of the year. 10Y UST yields declined 11bps to 4.42% while the 30Y UST yield fell by 13bps to 4.64%.

In 2025, the US Treasury’s financing needs are estimated to be USD4.5t. This includes USD2.5t of maturing UST and an estimated USD2t in fiscal deficit (Source: Congressional Budget Office). This will primarily be financed through an annual issuance size of ~USD4.4t. However, the US government’s funding needs is expected to pick up to USD5t in 2026, with ~USD2t fiscal deficit and USD3t of UST due for refinancing (Exhibit 1).

The USD2t fiscal deficit assumptions exclude the impact of the 2017 Tax Cuts and Jobs Act (TCJA) extension. The extension of the tax cuts would add USD4.6t to fiscal deficits over the next 10 years, assuming no further adjustments (Source: www.cfrb.org).

Exhibit 1: US government’s maturity profile (USD ‘b)

Source: US Treasury

While the US Treasury has boosted T-bill auction sizes to plug the funding gap, there is now limited capacity to further rely on T-bills. Presently, T-bills forms 21.9% of outstanding US Treasury debt, which is above the Treasury Borrowing Advisory Committee’s recommended range of 15-20%.

These suggest that US Treasury is expected to face a large funding gap in 2026 if it follows the same cadence of coupon issuance (of ~ USD4.4t a year). Therefore, we anticipate the Treasury to guide for an increase in issuances in early 2026.

Higher deficits and an increase in issuance requirements suggest investors demanding a higher term premium, driving long-end yields higher. We maintain an Underweight recommendation on UST and expect 10Y UST yields to reach 5% over the next 12 months.

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