Treasury refunding announcements are usually a real snooze for everybody but primary dealers and direct buyers.
But the refunding announcement this coming Wednesday at 9 a.m. ET will be more widely watched, as speculation is running high that the Treasury may have a new message for the markets about the size and make up of future auctions.
The talk picked up after the Treasury announced pared down T-bill issuance this past week, leading the bond market to speculate that the Treasury will see a smaller deficit, higher taxes and therefore less need to tap the market.
The Treasury is expected to announce the size of the 3-year, 10-year and 30-year bond auctions for the following week. The auctions for newly issued notes and bonds in these durations has been $72 billion, and traders mostly expect to see the size stay the same for now.
"Last year, the deficit was $1.1 trillion. This year, it might be about $845 billion. It's possible that there's a cut in coupon issuance, along with bill issuance. That would be the first cut since 2010. It might be having some influence this week in driving yields down," said Tony Crescenzi, strategist and portfolio manager with Pimco.
The 10-year yield dipped to an intraday low of 1.65 percent Friday, because of weak data and ongoing Fed buying, but the idea of smaller auction sizes is having some impact on at least the psychology of the market.
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"I don't think people have really caught on to the idea that this could be a dramatic one," said David Ader, chief Treasury strategist at CRT Capital. "They could say something as vague as they are considering the size of the auctions going forward."
The size of the auctions is important because the Fed is currently buying $40 billion in Treasurys a month.
"I wouldn't say there are high odds of them cutting back this week. There are some odds. There are higher odds they discuss it because they just cut back on bills," said Ader.
At some point, traders also expect to see the Treasury issue a floating-rate note. Though this idea has been around for a while, it's being discussed as traders consider a Fed exit ahead of the Fed meeting next week, where no action is expected.
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Traders are looking for the possibility of guidance in the quarterly refunding announcement in particular because it's often used to send messages.
Monday's 3- and 6-month-bill auctions are sized at $29 billion and $24 billion, respectively, pared back from this week's $32 billion and $28 billion.
There will be a 1-year bill auction on Tuesday that this week was $25 billion and is now expected to be $23 billion.