Latest / Markets with Megan: A Quick Financial Markets Update / Bond Market Trends: The Treasury's Quarterly Refunding Announcement | Episode 065 | 11-01-23

Transcript

Bond Market Trends: The Treasury's Quarterly Refunding Announcement | Episode 065 | 11-01-23 · Markets with Megan: A Quick Financial Markets Update

• 0:05
  Speaker 1: Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors, coming to you today with our regular segment of Markets with Megan, and I want to talk a little bit about what's going on in the bond market today.
• 0:15
  Speaker 1: We've seen a pretty big rally in bonds, so that means yields are down and prices are up.
• 0:20
  Speaker 1: And let's just kind of dig into what's going on and why.
• 0:23
  Speaker 1: First of all, the Treasury announced their issuance for the upcoming quarter.
• 0:28
  Speaker 1: This is their quarterly refunding announcement and normally this means absolutely nothing to anybody but bond traders.
• 0:34
  Speaker 1: It doesn't move the market.
• 0:36
  Speaker 1: It's just a regular quarterly announcement that they make so that we understand how much debt will be issued in that quarter.
• 0:44
  Speaker 1: But in August, the Treasury came out and actually announced a pretty big increase in what they were going to be issuing on a quarterly basis, and this spooked bond investors.
• 0:53
  Speaker 1: This is when we started to see that yields in the long end of the Treasury curve started to move higher in anticipation of this increase in supply.
• 1:02
  Speaker 1: Well, today they came out with that quarterly announcement and instead of $114 billion worth of bonds being issued this quarter, which was what was expected, they're going to issue $112 billion worth of issuance.
• 1:15
  Speaker 1: The markets rallying on this news, they decided that they would reduce their 10-year note and 30-year bond issuance by a slight amount and keep the 20-year unchanged from the prior quarter.
• 1:28
  Speaker 1: But you know, bond investors like this.
• 1:31
  Speaker 1: They like the fact that there's less supply.
• 1:33
  Speaker 1: I just want to put this in perspective.
• 1:35
  Speaker 1: Let's be honest.
• 1:36
  Speaker 1: This is $112 billion in one quarter compared to $114 billion, and we're seeing the 10-year Treasury yield down about 13 basis points on the day just on that news.
• 1:45
  Speaker 1: I think that that's a little bit optimistic.
• 1:49
  Speaker 1: Let's keep in mind that the Treasury is issuing a substantial amount of debt to fund our deficit and the biggest holder of Treasury bonds, which is the Federal Reserve, is reducing their balance sheet.
• 2:01
  Speaker 1: So I think this is probably just a little bit of a knee-jerk reaction.
• 2:05
  Speaker 1: We still think that there's probably some upward pressure that you'll see in yields in the coming months.
• 2:10
  Speaker 1: We're a little bit cautious that the investors took this with such positivity today.
• 2:17
  Speaker 1: This report that's all I have today about the refunding announcement.
• 2:20
  Speaker 1: If you have any questions or comments, please feel free to reach out to podcast at Verdence dot com.
• 2:24
  Speaker 1: Thank you.