Wall Street dealers predict when Treasury auction size cuts will begin

Wall Street dealers predict when Treasury auction size cuts will begin

- Treasury auction size cuts are likely coming, but there is no agreement among Wall Street dealers on when.

Just three of the 24 U.S. government securities dealers expect smaller auctions during the August-October quarter, details on which are slated to be unveiled Wednesday at 8: 30 a.m.

More expect the cuts to start in the November-January period, and for this week's quarterly refund announcement to set the stage with guidance on the government's thinking.

Other forecasters see steady sale amounts until February and some - including UBS Group AG - expect no changes until later in 2022.

The upshot: There's a yawning gap between the high and low ends of expectations for Treasury coupon supply over the next year. For example, UBS expects coupon supply totaling $283 billion in May 2022, while Barclays Plc predicts $352 billion. The discrepancy is concentrated in the area of 2- to 7 year. The forecast for the five year period is $43 billion in Barclays, UBS's $59 billion is at $43 billion.

UBS strategist Michael Cloherty says auction sizes are likely to be maintained for a longer time because 'the continuing threat of the pandemic on the economy and fiscal needs' may prolong budgetary uncertainty after current packages are approved, continuing into 2022.

The following are predictions for auctions of fixed-rate coupons and bonds by dealers who provided detailed forecasts for the coming three quarters. Each dealer appears in the table as to when it expects size cuts to begin, his forecasts don't appear. Sizes are in billions of dollars, with the most recent sizes in parentheses. Two to seven-year auctions are monthly new issues, while 10 -, 20 - and 30 - year entries are a new issue with two reopenings.

Regarding issuance of inflation-directed securities during the August-October quarter, the 21 dealers who provided forecasts uniformly expect an $8 billion 1 year reopening in August and a $14 billion 10 year reopening in September.