April 25, 2019
NEW YORK (Reuters) – The U.S. Treasury Department may float the idea of reducing the issuance of coupon-bearing debt at its upcoming May refunding after the Federal Reserve’s decision to end its balance sheet normalization later this year, Bank of America Merrill Lynch analysts said.
Any cuts in issuance will likely be among two-year, three-year and five-year maturities, where the Treasury has ramped up issuance to fund the widening of the federal deficit, Bank of America strategists Mark Cabana and Olivia Lima said.
“We expect the idea of coupon cuts to be discussed at the May refunding as the Fed’s decision to end their (balance sheet) unwind in (September) was likely earlier than (the Treasury) anticipated,” they wrote in a research note.
The issuance reductions could be up to $4 billion for each of these maturities, they said.
They said any decision on issuance changes will likely be announced at Treasury’s August refunding.
(Reporting by Richard Leong; editing by Jonathan Oatis)