Rates Tell the Story
QRA In Line With Market Expectations
The Results
The Treasury’s quarterly refunding announcement (QRA) was the first of two major macro events to transpire on Wednesday. Leading up to this, on Monday, there was an indication that the net borrowing for the current quarter would be $760 billion, which is $55 billion lower than the initial $815 billion estimate, and the total funding needs for Q2 would be just over $200 billion, well below the past several quarters. On Wednesday, the composition of the refunding was revealed. Overall, for this quarter, net bill issuance is significantly less than expected, decreasing from $468 billion to $318 billion. Furthermore, Q2 is projected to be mostly financed through duration, with over $500 billion in net new cash from coupons and a net negative issuance of bills.
Source: Treasury, Fundstrat
To summarize, the QRA indicated lower overall debt issuance (good), a slowdown in bill issuance (mixed), and a step-up in coupon issuance relative to prior estimates (not good).
The bullish perspective on the QRA is that the net cash raised by the Treasury is set to decrease for two consecutive quarters. This trend is particularly interesting given the size of the current fiscal deficit.
Source: Treasury, Fundstrat
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