Superficially, there were no surprises in the quantitative aspects of this morning's Treasury refunding announcement: as previewed earlier, the Treasury just announced a total quarterly refunding size of $125 billion, just as expected, and furthermore indicated it’s not looking to boost sales of notes and bonds "for at least the next several quarters", in a decision that will see the government increasingly rely on bills to fund the budget deficit. However, the big surprise was the announcement that "looking ahead, Treasury has begun to preliminarily consider future increases to nominal coupon and FRN auction sizes, with a focus on evaluating trends in structural demand and assessing potential costs and risks of various issuance profiles." Translation: no bond auction increases for a few months, and then we blast off, and the bond market reacted appropriately sending 10Y yields to session highs. 

Here are the details.

In  its refunding statement Wednesday, the department said it anticipated keeping auction sizes unchanged for nominal notes and bonds “for at least the next several quarters.” That form language, which has been used since early last year, reflects the higher cost of issuing longer-dated securities compared with bills, which mature in up to a year.

Next week’s auctions of 3-, 10- and 30-year maturities will total $125 billion, the same amount going back to May last year. Dealers had widely expected the move, and most don’t see an increase in issuance of notes and bonds until mid-2026 or later to help finance federal deficits, which have declined slightly in part because of tariff revenue.

For next week’s refunding auctions, they will be made up of:

<ul><li>$58 billion of 3-year notes on Nov. 10</li>
	<li>$42 billion of 10-year notes on Nov. 12</li>
	<li>$25 billion of 30-year bonds on Nov. 13</li>
</ul>The balance of Treasury financing requirements over the quarter will be met with regular weekly bill auctions, cash management bills (CMBs), and monthly note, bond, Treasury Inflation-Protected Securities (TIPS), and 2-year Floating Rate Note (FRN) auctions.

The Treasury issuance forecast table below, which shows actual auction sizes for the August to October 2025 quarter and the anticipated auction sizes for the November 2025 to January 2026 quarter, is identical to the preview we posted earlier (see below), confirming no surprises.

<a data-image-external-href="" data-image-href="/s3/files/inline-images/refundiung%20table%20q3%2025.jpg?itok=qvWBQJ5x" data-link-option="0" href="/s3/files/inline-images/refundiung%20table%20q3%2025.jpg?itok=qvWBQJ5x"><picture><img data-entity-type="file" data-entity-uuid="8932307f-4afa-481d-9f59-d2e8c2da6c1a" data-responsive-image-style="inline_images" height="166" width="500" class="inline-images image-style-inline-images" src="https://zh-dev-046fffa0-2095-430f-bd04-a687fe941952.storage.googleapis.com/s3fs-public/styles/inline_image_mobile/public/inline-images/refundiung%20table%20q3%2025.jpg?itok=qvWBQJ5x" alt="" typeof="foaf:Image" /></picture></a>

As an aside, the Fed's rate cuts have pulled down yields on the shortest-dated US debt, making it more attractive for the Treasury to sell those maturities. While 10-year yields are currently a bit above 4%, bills due in 12 months are around 3.5%. That's why the Refunding statement said that while it "expects to maintain the offering sizes of benchmark bills into late-November" and to "implement modest reductions to short-dated bill auction sizes during the month of December", thereafter, "by the middle of January 2026, Treasury anticipates increasing bill auction sizes based on expected fiscal outflows."

The share of bills compared with overall outstanding debt is set to rise unless the Treasury boosts longer-dated issuance. The ratio is on course to climb past 26% by the end of 2027, Citigroup estimates.

<a data-image-external-href="" data-image-href="/s3/files/inline-images/bill%20share%20of%20total.jpg?itok=MuoUwyny" data-link-option="0" href="/s3/files/inline-images/bill%20share%20of%20total.jpg?itok=MuoUwyny"><picture><img data-entity-type="file" data-entity-uuid="02b3f9ab-2bb4-4f3e-ac85-a0c365c36da3" data-responsive-image-style="inline_images" height="253" width="500" class="inline-images image-style-inline-images" src="https://zh-dev-046fffa0-2095-430f-bd04-a687fe941952.storage.googleapis.com/s3fs-public/styles/inline_image_mobile/public/inline-images/bill%20share%20of%20total.jpg?itok=MuoUwyny" alt="" typeof="foaf:Image" /></picture></a>

Last year, the Treasury Borrowing Advisory Committee — a panel of dealers, investors and other market participants — recommended it average around 20% over time. As of September, the ratio was over 21% and will keep rising for the foreseeable future. 

But it's not just Bill sizes that will spike: here is the sentence that sent TSY yields spiking by 3 bps so far:

<blockquote>
“Looking ahead, Treasury has begun to preliminarily consider future increases to nominal coupon and FRN auction sizes, with a focus on evaluating trends in structural demand and assessing potential costs and risks of various issuance profiles."
</blockquote>

While dealers had expected the Treasury start laying the groundwork for an increase in sales of longer-dated obligations at some poin - given that the government continues to run historically large fiscal deficits, boosting the overall debt load - today's announcement by the Treasury came as a surprise. It shouldn't have: as securities sold during the record deficits of the pandemic era, in 2020 and 2021, come due in coming years, Treasury note sales would only suffice to repay what’s maturing, meanwhile the US deficit remains at $2 trillion and rising.

<a data-image-external-href="" data-image-href="/s3/files/inline-images/tsy%20auction%20calendar_0.jpg?itok=-_wtRTuE" data-link-option="0" href="/s3/files/inline-images/tsy%20auction%20calendar_0.jpg?itok=-_wtRTuE"><picture><img data-entity-type="file" data-entity-uuid="de6618e4-3534-4da7-90e3-c55a66dacdf2" data-responsive-image-style="inline_images" height="262" width="500" class="inline-images image-style-inline-images" src="https://zh-dev-046fffa0-2095-430f-bd04-a687fe941952.storage.googleapis.com/s3fs-public/styles/inline_image_mobile/public/inline-images/tsy%20auction%20calendar_0.jpg?itok=-_wtRTuE" alt="" typeof="foaf:Image" /></picture></a>

Some Wall Street firms have pushed off forecasts for when they expect boosts to longer-dated issuance, given how Treasury Secretary Scott Bessent has signaled he prefers not to lock the government into higher borrowing costs at a time when bills are cheaper. And yet, that is precisely what he now intends to do in early 2026 based on today's announcement. 

This led to lots of confusion: in April, JPMorgan rates strategists expected officials to boost coupon sizes by this refunding announcement. But in the bank’s latest projection for when that would occur, ahead of Wednesday’s statement, that date had shifted to November 2026. Now JPM will have to adjust again. 

In a separate note, the Treasury Borrowing Advisory Committee said current projections could "warrant increases in coupon issuance in FY 2027" to wit: 

<blockquote>
In terms of issuance, the Committee recommended keeping nominal coupon sizes as well as TIPS issuance unchanged. The Committee discussed potential changes to coupon issuance in the future, and the timing thereof. Given the uncertainty of potential financing needs, the Committee was mixed on how Treasury should approach adjustments to its current forward guidance. The Committee believes that current projections could warrant increases in coupon issuance in FY2027
</blockquote>

The committee in a <a href="https://home.treasury.gov/news/press-releases/sb0306">letter to Treasury Secretary Scott Bessent </a>said that the current issuance mix appears to be near the “efficient frontier” while the Treasury’s move toward a higher share of T-bills in recent years somewhat reduced expected costs but also increased volatility, based on the committee’s refreshed Optimal Debt Model, one of many tools the Department uses to inform issuance decisions.

“While the current mix seems appropriate in a ‘Productivity Boom’ scenario, the other scenarios highlighted additional risks for Treasury,” TBAC wrote. “The Model suggests that a decrease in bill issuance, increase in belly issuance, and a decrease in bonds lowers volatility for a negligible cost increase in the adverse scenarios.”

Committee had an “extensive debate” around the tradeoff between solving for the lowest debt service costs versus limiting funding volatility, and how Treasury should think about risk tolerance and mitigation. When thinking about potential changes to coupon issuance in the future and timing, the Committee was mixed on how Treasury should approach adjustments to its current forward guidance.

Finally, the Refunding statement touched on the recent increase in Treasury buybacks, noting that in both the 10- to 20-year and 20- to 30-year nominal coupon buckets, Treasury plans to conduct four operations over the refunding quarter, each for up to $2 billion.  In the other nominal coupon buckets, Treasury plans to conduct one liquidity support buyback of up to $4 billion. Treasury also plans to conduct two operations in the 1- to 10-year TIPS bucket, each for up to $750 million, and one operation for up to $500 million in the 10- to 30-year TIPS bucket. 

Treasury also anticipates that over the course of the upcoming quarter it will purchase up to $38 billion in off-the-run securities across buckets for liquidity support and up to $25 billion in the 1-month to 2-year bucket for cash management purposes.

As announced at the last quarterly refunding, in the first half of 2026 Treasury plans to offer direct buyback access to a limited number of additional counterparties based on their participation in Treasury auctions. 

In response to the refunding statement's surprising notice of coming coupon increases, 10Y yields spiked not only to session highs, but are just shy of the highest level in the past week. 

<a data-image-external-href="" data-image-href="/s3/files/inline-images/10y%20yield%20spike.jpg?itok=M-LWgZhp" data-link-option="0" href="/s3/files/inline-images/10y%20yield%20spike.jpg?itok=M-LWgZhp"><picture><img data-entity-type="file" data-entity-uuid="1d5e6ce8-c7aa-4d94-9df2-71a27e6a587b" data-responsive-image-style="inline_images" height="297" width="500" class="inline-images image-style-inline-images" src="https://zh-dev-046fffa0-2095-430f-bd04-a687fe941952.storage.googleapis.com/s3fs-public/styles/inline_image_mobile/public/inline-images/10y%20yield%20spike.jpg?itok=M-LWgZhp" alt="" typeof="foaf:Image" /></picture></a>

Earlier:

Treasury Refunding Preview

The US Treasury announced it expects to borrow $569BN in privately-held net marketable debt in the Oct-Dec quarter down from the $590BN it projected for Q4 in July. The lower estimate is due to higher start of quarter cash balance, partially offset by lower projected net cash flows. The projection still assumes an end-Dec cash balance of $850BN, albeit some had been looking for this to increase to $900BN. Looking ahead to Q1 '26 (Jan-Mar), the Treasury expects to borrow $578BN, assuming an end-March cash balance of $850BN.

During the July-September 2025 quarter, the Treasury borrowed $1.058TN in privately-held net marketable debt and ended the quarter with a cash balance of $891BN. In July 2025, Treasury estimated borrowing of $1.007TN and assumed an end-of-September cash balance of $850BN. The $50BN difference in privately-held net marketable borrowing resulted primarily from the higher end-of- quarter cash balance and lower net cash flows. Excluding the higher-than-assumed end-of-quarter cash balance, actual borrowing was $10BN higher than announced in July.

Turning to the Quarterly Refunding Announcement, Newsquawk notes that for the refunding, the Treasury maintained guidance that it expects to maintain nominal coupon and FRN auction sizes for at least the next several quarters; any change to this would be of note. However, Morgan Stanley expects current coupon sizes to remain steady until February 2027, with guidance expected to be maintained. Regarding TIPS, Morgan Stanley expects the Treasury will continue with incremental increases to the TIPS auction sizes, expecting the $19BN of 10yr TIPS re-opening auction to be maintained, with a $1BN increase to both the 5yr TIPS re-opening and the 10yr TIPS new issue.

We will have a look at the upcoming buyback operations too for any changes. The prior refunding saw the Treasury state in H1 2026, it plans to offer direct buyback access to a limited number of additional counterparties, based on their participation in Treasury auctions. Morgan Stanley "interpret this statement to mean that the additional eligible participants for buyback operations will be the largest participants in auctions by risk taken down".

One thing to bear in mind is the Fed's end of QT. From December 1st, the Fed will start to reinvest all maturing Treasury security holdings on its balance sheet, while it will continue to let mortgage-backed securities roll off the balance sheet; however, the payments will be reinvested into Treasury bills instead of MBS. Morgan Stanley writes that after QT ends, the Fed will deem an across-the-curve reinvestment strategy as most optimal, meaning more front-end UST demand relative to the status quo.

Providing the nominal coupon auction sizes are left unchanged as per guidance, this is what the auction sizes would look like.

<a data-image-external-href="" data-image-href="/s3/files/inline-images/refunding1.jpg?itok=j2zMiCif" data-link-option="0" href="/s3/files/inline-images/refunding1.jpg?itok=j2zMiCif"><picture><img data-entity-type="file" data-entity-uuid="d499347f-1e14-4604-8147-8b186a1a16f6" data-responsive-image-style="inline_images" height="122" width="500" class="inline-images image-style-inline-images" src="https://zh-dev-046fffa0-2095-430f-bd04-a687fe941952.storage.googleapis.com/s3fs-public/styles/inline_image_mobile/public/inline-images/refunding1.jpg?itok=j2zMiCif" alt="" typeof="foaf:Image" /></picture></a>

“Treasury has begun to preliminarily consider future increases to nominal coupon and FRN auction sizes, with a focus on evaluating trends in structural demand and assessing potential costs and risks of various issuance profiles."


Yields Spike After Treasury Refunding Unexpectedly Warns Bessent Considering "Increases To Future Auction Sizes"

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