The US Treasury Department is keeping the size of the auctions unchanged, but the dealers’ minutes reveal surprises

The U.S. Treasury Department said on Wednesday it does not expect larger auction sizes for notes and bonds for at least the next few quarters, in line with market expectations, as it announced a $125 billion repayment from February to April 2026. The repayment is aimed at raising $34.8 billion in new cash from private investors this quarter. But the minutes of Tuesday’s meeting of the Treasury Borrowing Advisory Committee (TBAC), released Wednesday, caught the market’s attention because they included estimates from Primary Dealers of a $1.1 trillion deficit for the 2027-2028 fiscal year, as well as expectations about the timing of the next increases in auction size for notes and bonds.

The Treasury Department said it continues to evaluate future increases in auction sizes for nominal coupons (Treasuries and bonds that pay interest) and floating rate issues. The Treasury added that it will focus on “structural demand trends” and the potential costs and risks associated with different issuance strategies.In a statement, the Treasury Department also said it will sell $58 billion of U.S. three-year bonds, $42 billion of 10-year bonds and $25 billion of 30-year bonds next week. These figures matched the auction sizes for the same securities announced at the November redemption.

“The repayment was largely in line with expectations, with no changes to nominal coupon sizes or floating rate notes and essentially no change to forward guidance,” said Zachary Griffiths, head of investment grade and macro strategy at CreditSights in Charlotte, North Carolina.

The minutes also showed that dealers estimate that the Treasury is slightly overfunded for fiscal year 2026 at current issuance levels, as they have lowered their total private marketable loan estimate for fiscal years 2026-2028 by $258 billion.

Overall, dealers expect nominal coupon auctions to increase again in late 2026 or early next year. “The TBAC made a comment that it might be useful to start increasing nominal coupon auction sizes earlier, at a more gradual pace, and perhaps that will cause a small market reaction,” Griffiths said.

The yield curve steepened following the Treasury’s redemption announcement, with market participants pointing to the $1.1 trillion deficit cited in the TBAC minutes and expectations that the time frame for the increase in auction size for coupon issuance would come sooner than expected.

The difference between the US two-year and ten-year yields rose to 70.8 basis points (bps) after the redemption statement, from 69.3 basis points late on Tuesday.

A steeper curve could indicate concerns about rising budget deficits, prompting investors to avoid the long end of the curve.