T-bill Coneheads Must Consume Mass Quantities
Despite soaring Treasury borrowing and massive monthly issuance, markets have absorbed the supply through surging interest income and liquidity. However, technical indicators and upcoming yields remain critical to watch for potential systemic fragility.
Treasury Borrowing Forecast Means Coupon Reductions
Every quarter, the Treasury issues a new quarterly issuance forecast in what is known as the “quarterly refunding.” The schedule for the current quarter and a preliminary forecast for the following quarter were issued in early August. The forecast for the current quarter includes August, September, and October. The following quarter is nonsense, because things change, and the revisions that come along in the next quarterly refunding will be large. Therefore, I stick with what they have told us for the short run.
From the August Quarterly Refunding Statement:
During the July–September 2026 quarter, Treasury expects to borrow $739 billion in privately-held net marketable debt, assuming an end-of-September cash balance of $950 billion. The borrowing estimate is $68 billion higher than announced in May 2026, primarily due to lower projected net cash flows, partially offset by the higher-than-assumed beginning-of-quarter cash balance. Excluding the higher-than-assumed beginning-of-quarter cash balance, the current quarter borrowing estimate is $87 billion higher than announced in May.
The Treasury “only” missed the forecast for the current quarter by $87 billion, in the last refunding announcement in May. That’s why a lookahead beyond the next 3 months is not a useful exercise.
In terms of gross issuance of coupons, the Treasury schedule is highly accurate. Until 2 years ago, the TBAC (Treasury Borrowing Advisory Committee) also published a granular net supply estimate that was also highly accurate. It gave us an accurate road map of exactly how much net Treasury issuance to expect for the mid-month and end of month settlements.
Most likely because that information was so useful to investors and analysts who paid attention to it and featured it in their work, the Treasury and TBAC stopped that publication. Now, it only provides the schedule of expected gross issuance without providing the schedule, and without providing any information on maturing amounts, and therefore net issuance. Gross issuance has been stable, and the Treasury says that it will remain so:
Based on current projected borrowing needs, Treasury anticipates maintaining nominal coupon and FRN auction sizes for at least the next several quarters.
There is, however, a data source for maturities. The Monthly Statement of the Public Debt (MSPD) tells us exactly which issues are maturing when. That data can be manipulated to show the amounts of maturing coupons upcoming by date. Deducting those totals, and also considering Fed System Open Market Account (SOMA) holdings, enables the calculation of estimates of net coupon issuance for each mid-month and end of month issuance.
Those estimates are particularly useful to bond buyers and holders, and they also give us some idea how much supply pressure might suppress asset prices generally.
There are two problems with that information, however.
First is that my estimates are sometimes accurate, but sometimes they miss, usually by non-material amounts, but occasionally more. I deduce that the MSPD does not always accurately report the amounts of maturing debt still held by the public.
The second problem is that enormous amounts of new Treasury supply do not depress prices to the degree that they once did. This report discusses the mechanisms behind that, and forecasts what to expect in the months ahead, as a result. Finally, I connect the dots to the technical chart of Treasury yields and reveal the implications for stock prices.
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