LIVE MARKETS-Could "bond vigilant" Trump admin cut some Treasury auction sizes?

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COULD “BOND VIGILANT” TRUMP ADMIN CUT SOME TREASURY AUCTION SIZES?

The administration of U.S. President Donald Trump is highly attuned to moves in the U.S. Treasury market and could consider some small cuts to its Treasury coupon auction sizes in addition to other measures to cap selloffs in the market, according to BNP Paribas.

Treasury yields surged after Trump earlier this month announced larger than expected tariffs on trading partners, which analysts say led to large trade unwinds and possible foreign selling.

Trump then followed up with a 90-day pause on most tariff increases, which was likely due in large part to the sharp rise in U.S. Treasury yields, BNP analysts led by Guneet Dhingra said in a report.

“It is notable that the pause came right after the bond market tantrum, but not in response to falling stocks, publicly raised concerns or legal challenges,” the analysts said, adding that “the administration is very bond-vigilant.”

Going forward the government could employ several methods to help keep the market stable, BNP said. One is fast tracking deregulation of the supplementary leverage ratio rule, which would allow banks to set aside less capital to hold the assets, likely boosting demand for the debt.

Supply is also a key focus for the market. Here BNP says that the Treasury could forgo increases in its coupon-bearing auction supply for up to three years. And, "given current conditions, we think the Treasury could even consider lowering coupon supply at the next refunding meeting,” which is scheduled for April 30.

(Karen Brettell)

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