The Treasury Borrowing Advisory Committee unanimously recommended on Tuesday that the Treasury Department keep auction sizes for nominal coupons, floating rate notes and TIPS at current levels. The committee also said Treasury should consider adjusting its forward guidance language, according to minutes the department released Wednesday.
The committee agreed that, given projected borrowing needs, larger coupon auctions would likely be appropriate in the second half of fiscal 2027. Members generally agreed that any added issuance should be concentrated in the 2- to 10-year sector. They also had what the minutes call a meaningful discussion about possible future changes to 20-year and 30-year issuance.
The committee’s advice was requested on how to refund about $97 billion of privately held notes and bonds maturing Nov. 15, 2026. It was also asked about the mix of Treasury financing for the rest of the current quarter and the next one.
Fred Pietrangeli, director of Treasury’s Office of Debt Management, said current issuance sizes would leave a modest funding shortfall in fiscal 2027. He said the gap could likely be managed with Treasury bills. For fiscal 2028-2029, he said, the median forecast from primary dealers implies a $2.14 trillion shortfall based on current coupon auction sizes and privately held bill supply.
Pietrangeli also reviewed budget trends through the fourth quarter of fiscal 2026. Withheld taxes rose $159 billion (5%) and non-withheld taxes rose $103 billion (9%). Customs deposits fell $22 billion after adjusting for tariff refunds, and gross corporate taxes fell $43 billion (9%) while corporate refunds rose $27 billion (79%). The minutes attribute the last two changes to provisions of the One Big Beautiful Bill.
On spending, Treasury outlays rose $122 billion (8%) because of higher gross interest on higher debt levels. Health and Human Services Department outlays rose $120 billion (6%) because of higher Medicare and Medicaid spending.
Primary dealers generally expected Treasury to begin raising nominal coupon and floating rate note auction sizes by the end of fiscal 2027. They overwhelmingly expected the increases to focus on short- and intermediate-dated securities. Several dealers repeated their view that Treasury should consider a 1-year floating rate note indexed to SOFR. The committee agreed that exploring such notes would be worthwhile and suggested considering multiple maturities.
Almost all dealers favored no change to the schedule for bill and floating rate note auctions on days when the Federal Open Market Committee is expected to release a statement. They said the operational complexity of conducting more auctions on surrounding days would cost more than avoiding those dates would benefit. Most dealers also reported at least modest improvements in liquidity and market functioning after Treasury announced larger buyback operations on Aug. 19 for the 10- to 20-year and 20- to 30-year sectors.
The committee also took up two assigned topics. On borrowing by companies in the super intelligence sector, a presenter said there is no clear evidence that such issuance is crowding out Treasuries or non-tech credit. The presenter said sector borrowing is expected to keep rising in 2027 as demand for computing capacity outstrips supply into 2028, and attributed the rise in the 10-year Treasury yield mainly to growth driven by capital spending, with added pressure from energy price shocks.
On Treasury derivatives such as swaps and futures, a presenter said certain types of investors prefer them for liquidity and operational reasons. The presenter listed options policymakers could consider to make cash Treasuries more attractive, including easing balance sheet constraints and changing accounting and tax treatment.
The minutes were signed by Brian Smith, deputy assistant secretary for federal finance, and certified by committee chair Jason Granet. The committee chair summarized key elements of the committee’s report for Secretary Bessent during the meeting, according to the minutes.