NEW YORK- The US Treasury is likely to keep the current size of debt auctions for the upcoming quarter unchanged when it announces financing plans under a new administration next week, even as the economy faces a worsening budget deficit.
Investors, however, will look for guidance in the Treasury’s statement about the timing of future increases to address mounting financing needs. Forecasts from US banks on the time frame for raising auction sizes ranged from as early as August to sometime in 2026.
Next week’s quarterly refunding, the first under Treasury Secretary Scott Bessent, should garner attention in the wake of a persistent rise in long-term Treasury yields, which partly reflects concerns that the shortfall in federal revenue versus expenditures will require ever more issuance of government debt to cover it.
Since the launch of the Federal Reserve’s easing cycle in mid-September, the benchmark 10-year yield has climbed roughly 90 basis points. The yield was last at 4.52 percent.
J.P. Morgan estimated that the US fiscal deficit will climb to $1.895 trillion or 6.2 percent of gross domestic product (GDP) this year, increasing to $2.2 trillion next year or 7.1 percent of GDP. In 2017 when Trump first took office, that deficit was 3.1 percent of GDP.
“Widening budget deficits suggest that Treasury will need to boost coupon auctions later this year or in early 2026,” said Zachary Griffiths, head of investment grade and macro strategy at CreditSights in Charlotte.
The majority of bank forecasts expect the Treasury to increase the auction sizes for notes and bonds at the November refunding when an escalating fiscal deficit and declining borrowing capacity result in a large funding gap in 2026.
Analysts said they expect the Treasury to announce $125 billion of refunding auctions of the three-year, 10-year, and 30-year maturities scheduled for the following week, unchanged from the last refunding announcement.
Market participants also anticipate modest increases in the auction sizes of Treasury Inflation-Protected Securities (TIPS), a move aimed at raising the TIPS share of the Treasury market. Primary dealers in October recommended to the Treasury to increase TIPS sizes because the market could absorb additional supply.
“The key takeaway for the Treasury market is that supply will remain elevated for the foreseeable future as rising deficits and maturities of existing debt push up borrowing needs,” Griffiths said.