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U.S. Treasury adjusts the speed of government bond issuance… ‘Brake’ on sudden rise in interest rates

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$112 billion bid next week… $103 billion in previous quarter
10-year and 30-year bond issuance, down $1 billion from the previous quarter
2-year yield falls 9.8bp… 10-year note 8.4bp↓

With U.S. Treasury yields hitting the highest level in 16 years and financial market anxiety growing, the U.S. Treasury has begun to control the pace of long-term Treasury bond issuance.

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According to CNBC on the 1st (local time), the Treasury Department announced that it plans to raise more than $9 billion in additional funds by bidding on $112 billion in mid- to long-term government bonds next week to repay $102.2 billion in bonds that will mature on the 15th.

The bidding will begin on the 7th with $48 billion of 3-year maturity bonds, then the next day with $40 billion of 10-year maturity bonds, and $24 billion of 30-year maturity bonds.

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The total size is a slight increase from the $103 billion presented in August and is consistent with Wall Street estimates.

This quarter, we plan to increase the size of 2-year and 5-year bonds by $3 billion per month, 3-year bonds by $2 billion per month, and 7-year bonds by $1 billion per month. The increase in 10-year bond issuance was $2 billion, and 30-year bonds were $1 billion, down $1 billion from the previous quarter. The scale of increase in 20-year bond issuance was maintained.

“This change will make significant progress in aligning the size of bids with expected borrowing needs,” the Treasury said in a statement. “We anticipate that it will be necessary to increase the size of bids by an additional quarter beyond today’s announcement.”

As government bond yields recently reached their highest since 2007, anxiety in the financial market has been growing.

Treasury officials believe that the rise in yields is mostly due to expectations of high growth rates. In a letter, the chairman and vice-chairman of the Treasury’s borrowing advisory committee said, “It appears that several factors have contributed to the rise in long-term yields,” and mentioned the solid labor market and term premium.

However, there is growing concern in the market that the Federal Reserve will continue to raise interest rates to lower inflation to an appropriate level.

After the Treasury announcement, stock market futures hit record lows and Treasury yields fell.

The two-year maturity government bond yield was 4.971%, down 9.8bp (1bp=0.01%) from the previous day. The 10-year Treasury yield fell 8.4bp from 4.874% to 4.790%, and the 30-year Treasury yield fell 4.8bp from 5.022% to 4.974%.

Previously, the Ministry of Finance announced on the 30th of last month that it would borrow $776 billion in the fourth quarter of this year and $816 billion in the first quarter of 2024.

Source: Donga

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