US Treasury surveys dealers on auctions, buyback program By Reuters

(Reuters) – The U.S. Treasury Department is asking primary dealers their views on what specific bonds it should issue more of when it needs to raise more funds through the bond market, and for details around how a likely bond repurchase program would work.

The Treasury noted that it may need to “modestly” increase the size of some of its coupon-bearing debt auctions as soon as August and asked banks which maturities they expect to see increased, and how size increases should be managed across the Treasury curve.

It also queried dealers on whether it should increase sales of floating-rate notes and/or Treasury Inflation-Protected Securities (TIPS) as part of this process.

The Treasury also asked banks their opinions on details around a bond repurchase program that it has previously indicated is likely to begin in 2024.

This program is meant to help boost liquidity in the $25 trillion market, which has deteriorated due to the market’s growing size, Federal Reserve interest rate hikes and changes in banking regulations.

The questions include whether certain issues should be excluded from buyback operations, such as securities that are the cheapest-to-deliver in futures contracts, those that trade with large premiums in the repurchase agreement market or based on how recently they were issued.

It also asked if some issues should be excluded based on how much of the security is outstanding in the private market, and what measures should be used to evaluate whether to accept offers that are submitted in buyback operations.

It further queried what the risks and benefits are of comparing offers to market prices or measures of relative value, and whether these measures would indicate which securities would benefit most from liquidity support.

The questions are being posed as part of its regular survey of dealers before each of its quarterly refunding announcements.