Fed Will Change Treasury Issuance Volumes to Tackle Yield Curve Normalization

A Treasury index is an index based on recent auctions of U.S. Treasury bills and is used as a benchmark when determining interest rates, such as mortgage rates. These indexes are constructed and published by various financial companies such as Vanguard, Fidelity, and Northern Trust, and may also form the basis of Treasury ETFs issued by these providers.

In an attempt to normalize the pseudo inverted Treasury yield curve, Fed recently announced its new refreshing effort to “play” with longer dated bond issuance volumes.

According to Reuters, the U.S. Treasury Department on Wednesday said it will slow the pace of increases in its longer-dated debt auctions in the November 2023 to January 2024 quarter and expects it will need one more additional quarter of increases after this to meet its financing needs.

Treasury yields fell after the announcement on relief the increases were not as large as some had feared. It comes after the U.S. government on Monday cut its borrowing estimate for the quarter to $776 billion, $76 billion less than its forecast in July.

At the same time, the Treasury suggested it would increase the size of its 2Yr and 5Yr note auctions by $3 billion per month, and to increase the size of its 3-year and 7-year note auctions by $2 billion and $1 billion per month, respectively.