Last weeks exciting news was Treasury announcing that they would double the amount of buybacks for the 10-20y and 20-30y maturity buckets from as much as 2b per operation to as much as 4b per operation. Note I use the term “as much as” because the buyback operations do not always result in Treasury buying back the max amount they “authorize” themselves for that operation. In fact just last week the buyback operation in the 3-5y maturity bucket was “authorized” to buyback 4b, but Treasury only executed buybacks on 1.86b of the 10.159b offered to them to buyback
To be sure though, while not fully executed buyback operations are not super uncommon in the 3-5, 5-7, and 7-10y maturity buckets, they are in the 10-20y and 20-30y so the doubling of buyback max per operations from 2b to 4b should indeed translate to additional realized buybacks.
One sticking point though. Treasury DID NOT announce that they were doubling the buyback max per operation from 2b to 4b. Rather they announced that they were AT LEAST doubling the max size of the operations
To date, Treasury has not released an updated tentative Treasury buyback schedule (the long dated maturity buckets still show 2b). Perhaps Treasury will release one ahead of Bessents presser tomorrow, but whenever they do. I think it is more probable than not that they release a schedule showing max operation sizes more than double, perhaps well so. It certainly appears as though there is plenty of demand for it. Treasury’s statement last week highlighted the “significant volume of high-quality offers Treasury routinely receives in longer-dated buyback operations”.
Looking at the 20-30y operation on August 18th, nearly 20b of offers were tendered with Treasury accepting only 2b (presumably the best)
I dont have the data to determine how many of the other 18b in offers were “high quality” but Treasury’s statement indicates its substantial. Note also that while 2b in debt was retired as a result of the operation. It did not take 2b in cash from the TGA to do so, instead it only took 1.3b in cash from the TGA, so while increasing the longer dated buybacks will increase Treasury’s need for short term bill issuance there is a significant discount applied to it.
The last couple months of long dated buyback operations saw similar levels of offers for the 20-30y bucket and less but still considerably more than the 2b “authorized” for those buybacks
The most recent 10-20y saw 7.4b, 16.3b, 15,7b
The most recent 20-30y saw 19.9b, 21.9b, 30.5, 21.3b
So while the 10-20y bucket might be just doubled, I would be surprised if the 20-30y bucket max buyback amount was not increased higher than double. The demand certainly seems to be there for it (and it seems to support what the admin thinks it wants to do going into the midterms) so dont be surprised if this happens.
And of course, I have updated the TTMs projected buyback schedule to reflect the doubling and will further update it when Treasury produces an updated buyback schedule.
Summer QRA wrapup
No huge surprises came out of the Summer QRA. Treasury’s internal modelling is in fairly good agreement with the TTM. As a reminder my Summer QRA projection was
Treasury weighed in with.
So the Treasury at 633b for Jul-Sep was 52b higher than TTM was projecting but at 646b in Oct-Dec was 21b less than the TTM is projecting for an aggregate 31b difference thru the end of the calendar year. Pretty good agreement. Also, Treasury has a likely TGA level of 850b for the end of the year which is exactly what the TTM had.
We shall see in a little over a month if the TTM can start a new streak of outperformance on the front quarter.
TTM performance since early August
The daily performance of the TTM for projecting all the TGA categories has been pretty good in aggregate each day. Paid subscribers know in detail what is very likely to happen with the TGA (broken out by category) each day.
Upcoming Bill Issuance Pattern
The early September bill issuance reductions should start being announced this week and take effect the weeks of 9/1 and 9/8. The increased buybacks could have a small effect on these reductions, but given the actual cash flow Treasury needs on these buybacks most effect it could have would be keeping the 4w bills 5b a week higher for a few weeks vs. what they otherwise would have been. Small stuff in the grand scheme of things. As always, full details in the model output.
The Fed did reduce their Reserve Management Purchases earlier this month and are now buying t-bills only at the rate their MBS paysoff (16-20b/month). I have adjusted the TTMs schedule on this and in the aggregate this increases Treasury’s bill issuance rates a little bit through next fiscal year. Its possible the Fed will increase them again, though for now I have it modeled at just the MBS payoff rate thru next FY.
Coupons
Indeed there was no change this QRA. Even with Treasury’s buyback announcement earlier this week, I remain of the opinion that more coupons are coming in the Winter or Spring QRAs next year though I think they will be concentrated in the lower end of the belly and I would not be surprised if the long end sees outright reductions. One thing to consider next QRA though is that the coupons portion of it comes Wednesday morning, after the midterm election day on Tuesday, so whatever impact midterm pressures are putting on Treasury actions right now, that die will be cast before the coupon announcement comes out.
Full Model Output
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Daily projections of the start and close level of the TGA each day
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Thanks for your support,
John
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