US GOVTS -Bear steepening into Refunding announcement, thinking big after Treasury’s $3T bomb -IFR News
Back to the future, another risk-on melt up after stateside stocks trimmed losses, and into the close sprinted to gains. Thus the treasuries complex today is unfettered by fear, able to conform and price more to its own static supply and demand factors. Translating into a bear steepener. Since, after Treasury’s bombshell announcement, that they will borrow $3 tn with a “T” in the current quarter, some on the Street are thinking the Refunding announcement Wednesday may be larger than expected/priced. Median expectations for the Refunding are $91 bn, however we believe they may add at least a billion.
Now that the $3 tn cat is out of the bag. No doubt the vast majority of the coming supply avalanche will be in T-bills. Treasury debt managers are cognizant that even in a pandemic crisis, there must be time to prep for big size adjustments. This morning Wrightson wrote “Regardless of how aggressively the Treasury boosts its coupon offerings in Wednesday morning’s refunding announcement, the vast majority of the Treasury’s Q2 borrowing needs will have to be met in the bill sector. We now look for an increase of $2.7 trillion in the net market supply of bills this quarter, from a level of $2.3 trillion on March 31 to roughly $5 trillion on June 30.” Thus we say the coming huge duration supply, will build momentum. And the money-line, increases to duration/WAM (weighted average maturity), will likely end up larger for longer. Meanwhile the near-term trade remains the discovery of Refunding sizes, overall and tenor sizes.
Median expectations as said are for $91 bn, up from $84 bn, with a $4 bn bump to $42 bn 3s, $2 bn bump to $29 bn 10s, and a $1 bn bump in bonds. We believe with the $3 tn cat out of the bag, Treasury may boast bigger bumps. To $92 bn, with $42 bn 3s, $29 bn 10s, and $21 bn 30s. For the renewal of 20-year issuance, the market median is $15 bn with $12 bn reopenings. We believe that Treasury may be tempted to jump to $18 bn 20s with $15 bn reopenings.