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3/19/2020

QUARTERLY REFUNDING STATEMENT OF DEPUTY ASSISTANT SECRETARY FOR FEDERAL FINANCE BRIAN SMITH | U.S. Depa…

QUARTERLY REFUNDING STATEMENT OF DEPUTY ASSISTANT
SECRETARY FOR FEDERAL FINANCE BRIAN SMITH
October 31, 2018

WASHINGTON — The U.S. Department of the Treasury is o ering $83 billion of Treasury
securities to refund approximately $54.3 billion of privately-held Treasury notes and bonds
maturing on November 15, 2018. This issuance will raise new cash of approximately $28.7
billion. The securities are:
-

A 3-year note in the amount of $37 billion, maturing November 15, 2021;

-

A 10-year note in the amount of $27 billion, maturing November 15, 2028; and

-

A 30-year bond in the amount of $19 billion, maturing November 15, 2048.

The 3-year note will be auctioned on a yield basis at 1:00 p.m. ET on Monday, November 5, 2018.
The 10-year note will be auctioned on a yield basis at 1:00 p.m. ET on Tuesday, November 6,
2018. The 30-year bond will be auctioned on a yield basis at 1:00 p.m. ET on Wednesday,
November 7, 2018. All of these auctions will settle on Thursday, November 15, 2018.
The balance of Treasury financing requirements over the quarter will be met with the weekly bill
auctions, cash management bills, the monthly note and bond auctions, the November 10-year
Treasury Inflation-Protected Securities (TIPS) reopening auction, the December 5-year TIPS
reopening auction, the January 10-year TIPS auction, and the regular monthly 2-year Floating
Rate Note (FRN) auctions.

ENHANCEMENTS TO THE TIPS PROGRAM: AN ADDITIONAL
5-YEAR CUSIP IN OCTOBER, THE SUPPLY OUTLOOK, AND
CHANGES TO THE 2019 TIPS CALENDAR
Consistent with Treasury’s longstanding commitment to the TIPS program and as referenced at
the August 2018 Quarterly Refunding, Treasury is hereby announcing several enhancements to
the TIPS program. These modifications reflect findings resulting from an extensive year-long
market outreach to TIPS market participants and the Treasury Borrowing Advisory Committee
(TBAC). The enhancements to the TIPS program are described below.
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QUARTERLY REFUNDING STATEMENT OF DEPUTY ASSISTANT SECRETARY FOR FEDERAL FINANCE BRIAN SMITH | U.S. Depa…

New TIPS Issue: Treasury will introduce a new October 5-year TIPS maturity starting in 2019.
TIPS market participants are broadly supportive of this change, and have indicated that an
additional October 5-year maturity would balance the TIPS calendar in a manner that improves
the market’s ability to price the seasonality of CPI into the TIPS curve, which could lower TIPS
volatility and Treasury’s issuance cost overall.
Supply Outlook for CY 2019: Treasury expects to increase total TIPS issuance by approximately
$20 to $30 billion over CY 2019, with much of the net new issuance likely to be focused in the
newly-announced October 5-year issue. Treasury does not intend to make any changes in TIPS
supply over the next 3 months, but anticipates gradual increases in TIPS issuance commencing
a er the February 2019 Quarterly Refunding. The increase in TIPS issuance reflects Treasury’s
increased borrowing needs and is consistent with the TBAC’s recommendation that TIPS should
remain around 7 percent of gross issuance.
The CY 2019 TIPS Auction Calendar: Treasury is modifying the existing TIPS auction calendar in a
way that accommodates market demand for a new original 5-year TIPS in October, while
maintaining the existing “one-TIPS-auction-per-month” issuance cadence.
Specifically, Treasury will replace the existing October 30-year reopening auction with the new
October 5-year TIPS maturity. Additionally, starting in 2019, the 30-year will be reopened only
once, rather than twice as it currently is, and the first 30-year reopening will be moved from
June to August. Finally, the first reopening of the April 5-year TIPS will be moved from August to
June.
Maintaining the “one-TIPS-auction-per-month” issuance paradigm was viewed as highly
desirable from a distribution perspective; furthermore, the calendar modifications that are
being announced were generally regarded by market participants as minimally disruptive
relative to the existing TIPS calendar. The new TIPS calendar for 2019 appears below:

Month

January

https://home.treasury.gov/news/press-releases/sm538

(Current)
2018 TIPS
Auctions
10-Yr Original

(New)
2019 TIPS
Auctions
10-Yr
Original

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QUARTERLY REFUNDING STATEMENT OF DEPUTY ASSISTANT SECRETARY FOR FEDERAL FINANCE BRIAN SMITH | U.S. Depa…

Month

(Current)
2018 TIPS
Auctions

(New)
2019 TIPS
Auctions

February

30-Yr Original

30-Yr
Original

March

10-Yr Reopening

10-Yr
Reopening

April

5-Yr Original

5-Yr
Original

May

10-Yr Reopening

10-Yr
Reopening

June

30-Yr Reopening

5-Yr
Reopening

July

10-Yr Original

10-Yr
Original

August

5-Yr Reopening

30-Yr
Reopening

September

10-Yr Reopening

10-Yr
Reopening

October

30-Yr Reopening

5-Yr
Original

November

10-Yr Reopening

10-Yr
Reopening

December

5-Yr Reopening

5-Yr
Reopening

The elimination of one 30-year TIPS reopening auction should not be interpreted by market
participants as a lack of commitment to the 30-year TIPS security as a benchmark TIPS tenor.
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QUARTERLY REFUNDING STATEMENT OF DEPUTY ASSISTANT SECRETARY FOR FEDERAL FINANCE BRIAN SMITH | U.S. Depa…

Treasury is considering increases to the remaining 30-year TIPS auction sizes as a result of the
elimination of one of the reopenings.

PROJECTED FINANCING NEEDS: INCREASE IN COUPON
SIZES
At the February, May, and August 2018 Quarterly Refundings, Treasury announced modest
increases to nominal coupon and 2-year FRN auction sizes. These adjustments in auction sizes
were necessary to respond to increased borrowing needs resulting from the Federal Reserve’s
reinvestment policy for its System Open Market Account (SOMA) portfolio, as well as the fiscal
outlook.

COUPON AND FRN FINANCING
Based on our current forecast, Treasury is announcing additional modest increases to nominal
coupon auction sizes and FRNs over the upcoming quarter. Over the next two months, Treasury
anticipates increasing the sizes of the 2-, 3-, and 5-year note auctions by $1 billion per month.
As a result, the size of 2-, 3-, and 5-year note auctions will increase by $2 billion, respectively, by
the end of January. In addition, Treasury will increase the auction size of the next 2-year FRN
auction by $1 billion in November. Finally, Treasury will increase auction sizes by $1 billion to
each of the next 7- and 10-year notes and the 30-year bond auctions in November, and hold the
auction sizes steady at that level through January. All changes are applicable to subsequent
new issues and reopenings. In total, these adjustments will result in an additional $27 billion of
new issuance for the upcoming quarter, which is slightly lower than the $30 billion increase
announced in August.

BILL FINANCING
Treasury uses changes in the supply of Treasury bills to address short-term fluctuations in
funding needs. Short-term changes in funding needs are most o en driven by seasonal factors
related to the timing of federal receipts and outlays. A er recently peaking in August, aggregate
bill supply has declined modestly during the months since. Over the next few weeks, and
consistent with historical patterns, bill supply is anticipated to gradually rise as seasonal
funding needs increase. This increased bill supply includes the new benchmark 2-month bill,
first auctioned on October 16, 2018.

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QUARTERLY REFUNDING STATEMENT OF DEPUTY ASSISTANT SECRETARY FOR FEDERAL FINANCE BRIAN SMITH | U.S. Depa…

Based on our current fiscal forecast, the volume of bills outstanding is expected to gradually
increase in magnitude and at a pace similar to what was observed between mid-July 2018 to
late August 2018, before modestly declining into year-end. This expected increase in bill supply
reflects Treasury’s current internal forecast; any unexpected changes in financing needs could
result in a deviation from our projected change in bill supply.

WAM
Treasury anticipates the financing changes announced today will continue to result in a
weighted-average maturity (WAM) of the debt outstanding that is stable at or around current
levels, barring large, unexpected changes to borrowing needs.
Treasury will assess the need to make further adjustments to auction sizes at the next Quarterly
Refunding in February 2019 based on projections of the fiscal outlook at that time.

THE SUCCESSFUL ROLLOUT OF THE NEW 2-MONTH BILL
AND 1-MONTH BILL TRANSITION
Treasury successfully auctioned the first benchmark 2-month bill on October 16, 2018. Unlike
Treasury’s traditional bill settlement day of Thursday, the new 2-month bill will settle on
Tuesday a er a period of transition.
In order to enhance the liquidity of the new 2-month bill, Treasury announced at the August
Quarterly Refunding changes to the 1-month bill auction cycle beginning in November 2018.
A er a period of transition, the 1-month bill will be a reopening of the 2-month bill, and will also
settle on Tuesday.
Treasury’s implementation of the new 2-month bill along with the change in the 1-month bill
auction cycle started in mid-October and will continue over the previously announced transition
period, which will end in December.
The transitional bill auctions schedule can be found in the attachment

to this document.

TEST BUYBACK OPERATION
Since 2014, Treasury has conducted periodic testing of existing IT infrastructure to ensure that
buyback functionality remains operational. Within the next month, Treasury intends to conduct
another small-value buyback operation to continue testing the buyback infrastructure. Details
of such an operation will be announced at a later date.
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QUARTERLY REFUNDING STATEMENT OF DEPUTY ASSISTANT SECRETARY FOR FEDERAL FINANCE BRIAN SMITH | U.S. Depa…

This small-value buyback operation should not be viewed by market participants as a precursor
or signal of any pending policy changes regarding Treasury’s use of buybacks.
Please send comments and suggestions on these subjects or others related to debt
management to debt.management@treasury.gov.
The next quarterly refunding announcement will take place on January 30, 2019.
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