US Treasury signals year-end bond supply will be lower than forecast, but an uptick is ahead

• The Treasury Department plans to borrow $776 billion in the last three months of 2023.
• That is $76 billion below its earlier estimate and marks a slowdown from last quarter's borrowing spree.

US bond yields pulled back Tuesday after the Treasury Department signaled debt-issuance plans for the end of 2023 that were below previous estimates.

According to Monday's announcement, the US expects to borrow $776 billion in the October-December quarter, $76 billion below July estimates, as tax receipts are due to increase.

The 10-year US Treasury yield dipped 2 basis points to 4.858%, and the 30-year yield fell 3 basis points to 5.005%.

While markets are waiting for the Treasury Department's update on Wednesday to learn how auction sizes will be impacted by the borrowing plan, the year-end projection contrasts with the shock bond traders got over the summer.

That's when the Treasury revised its July-September borrowing up to $1.01 trillion, or $274 billion more than estimates. Bond yields jumped, contributing to a historic Treasury sell-off.

Still, the Treasury Department will have to keep issuing US debt at higher levels, and borrowing is projected to climb to $816 billion for the January-March period, a record high for that quarter.

The increased bond supply comes as investor demand for Treasurys has shown signs of weakness. Meanwhile, with federal deficits still ballooning, Wall Street has been lifting estimates for 2024 bond issuance.

However, Morgan Stanley estimated that year-end borrowing may fall below consensus, saying that the rising term premium — or how much investors require in compensation for holding the debt asset — was an incentive for the Treasury to slow down issuance.