LIVE MARKETS-Could the U.S. Treasury adopt a more dynamic strategy for debt issuance?

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COULD THE U.S. TREASURY ADOPT A MORE DYNAMIC STRATEGY FOR DEBT ISSUANCE?

The U.S. Treasury Department said on Wednesday that it is starting to look at increasing the size of its nominal coupon and floating rate note auction sizes, which analysts expect could begin in late 2026 or in 2027.

A group of banks and asset managers that advise the government on its borrowing strategy also said that one option in the future could be to adopt a more dynamic issuance strategy that gradually changes the issuance mix as economic conditions change.

“We think that some degree of response to observed term premium shifts could lower costs while remaining consistent with “regular and predictable” principles of debt management,” the Treasury Borrowing Advisory Committee said. However, “more work needs to be done on designing and assessing such a strategy.”

The U.S. government is expected to need to increase its debt issuance to finance a worsening budget deficit. Primary dealers expect two-year and five-year notes to see the biggest increases in auction sizes when they begin.

(Karen Brettell)

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