The forecast for Treasury bond issuance in 2024 has been revised upward to a record $1.34 trillion in 10-year equivalents, an increase of $90 billion from earlier predictions, according to BofA analysts. The revisions come as rising interest rates are expected to intensify US deficits and impact deficit spending, leading to a larger UST issuance and a spiral effect due to increased financing costs.
The fiscal year 2023 deficit is projected to rise from $1.8 trillion in 2024 to $2 trillion by 2026, while net interest payments are anticipated to constitute a record 3.5% of GDP in 2026. As a result, the Treasury Department is likely to continue issuing debt, further expanding the already sizeable $25.8 trillion market.
BofA also anticipates an increase in auction sizes akin to the August refunding, with the exception of the 7y and 20y tenors. Similar increases are expected in the February and May refundings next year. The ex-Fed 10-year bond supply is anticipated to reach a record $1.53 trillion in 2024 due to quantitative tightening.
Josh Frost, Assistant Secretary for Financial Markets at the Treasury, has indicated readiness for larger coupon auctions as per November 1 borrowing plans. This comes despite recent dampened demand in auctions that have pushed rates to 16-year highs.
Market commentators such as Ray Dalio and Bill Gross have warned about the need for higher interest rates to attract buyers in this evolving economic environment.
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