Treasury's quarterly refunding announcement is hitting bonds. Here are a few details (bad ones highlighted):
- TREASURY SAYS OVER THE NEXT QUARTER CASH BALANCE WILL LIKELY REMAIN ELEVATED AS IT SEEKS TO MAINTAIN PRUDENT LIQUIDITY
- TREASURY SAYS IT EXPECTS TO BEGIN TO SHIFT FINANCING FROM BILLS TO LONGER-DATED TENORS OVER THE COMING QUARTERS
- TREASURY SAYS INTENDS TO INCREASE AUCTION SIZES ACROSS ALL NOMINAL COUPON TENORS OVER THE MAY-TO-JULY QUARTER
- TREASURY SAYS INCREASE IN COUPON ISSUANCE WILL BE LARGER IN LONGER TENORS
- TREASURY SAYS ANTICIPATES THE INITIAL OFFERING SIZE OF THE NEW 20-YEAR BOND WILL BE $20 BLN AND THAT THE AUCTION WILL TAKE PLACE ON MAY 20
The emphasized bullet points are not what the bond market wanted to see. The fear of such things was largely behind the increasingly weak trading we've seen in recent days. Yields moved quickly higher, with 10s up 5.1bps at 0.713%.
MBS are less concerned as they are less directly affected. 2.5 UMBS are down only 2 ticks (0.06) on the day at 103-26 (103.80).
Sending this out as an alert due to momentum implications (i.e. a risk that this keeps weakness intact as traders reposition portfolios throughout the day). MBS still wouldn't be as concerned, but they'd still be more predisposed to weakness vs strength
