The US Treasury will launch a new refunding cycle early Wednesday Beijing time (midday Tuesday US Eastern Time), sending quarterly questionnaires to primary dealers.
With long-end yields continuing to climb and markets highly sensitive to the Treasury's debt management strategy, the wording and design of this questionnaire will serve as a key window for interpreting the Treasury's policy intentions.
According to an October 15 research report by Deutsche Bank strategists Steven Zeng, Matthew Raskin, and Andrew Fu, the unusually high attention on this questionnaire stems from the Treasury's surprise expansion of long-end Treasury buybacks in mid-August.
The market widely expects the Treasury to make the expanded long-end buyback scale permanent at the November refunding meeting, and today's questionnaire may signal this direction in advance.
At the same time, discussions around cutting long-end Treasury issuance or even eliminating 20-year bonds are intensifying, and any explicit wording in the questionnaire pointing to these topics would have a direct and significant impact on rates markets.
Deutsche Bank's report outlines five potential question areas, covering optimization of long-end buyback scale, coupon issuance cuts, drivers of long-end yield increases, Federal Reserve balance sheet policy, and repo market mechanism design.
Among these, long-end issuance cuts and the fate of 20-year bonds carry the highest market sensitivity, and if the questionnaire explicitly addresses them, a strong bond market reaction is expected.
Long-End Buybacks: From Temporary Expansion to a Permanent Mechanism
The report notes that long-end buybacks are one of the most certain topics in this questionnaire.
Since the Treasury unexpectedly expanded long-end buyback operations in August, market attention on their future direction has continued to rise.
In the completed expanded-scale operations, the Treasury actually accepted bids that were close to but did not reach the per-operation cap, meaning the current cap has room for further optimization.
Deutsche Bank believes that if the Treasury intends to make the expanded long-end buyback scale permanent — which the bank expects to be formally confirmed at the November refunding meeting — it would need to consult dealers through the questionnaire beforehand on the optimal operation size, seeking a balance between raising the cap and the volume of bids actually acceptable.
The questionnaire may also seek dealer feedback on whether the expanded operations have effectively improved liquidity in the long-end Treasury market, providing a basis for the Treasury to assess policy effectiveness.
Coupon Cuts: The Most Market-Damaging Potential Issue
Among the five topics, questions related to cutting long-end Treasury issuance carry the most significant potential market impact.
The report notes that recent market discussions about the Treasury taking more proactive debt management actions have increased notably, including cutting long-end Treasury issuance and even eliminating 20-year bonds.
If the Treasury seeks dealers' views in the questionnaire on structural demand across various Treasury maturities, it would align with its previous statement about "continuously evaluating coupon sizes based on demand trends," and would also strengthen market expectations that the Treasury may ultimately respond to high yields by reducing long-end supply.
More critically, if the questionnaire includes explicit wording asking "how much long-end issuance could be cut without harming market liquidity," or directly names 20-year bonds, it would be seen by the market as a highly significant policy signal and is expected to trigger a strong market reaction.
Yield Increase Attribution: Supply-Demand or Technical Factors?
Since August, long-end US Treasury yields have risen sharply and the curve has steepened noticeably.
Deutsche Bank believes the Treasury may use this questionnaire to seek dealers' interpretation of this market move.
Specifically, the questionnaire may ask dealers to distinguish between fundamental drivers of rising yields (such as fiscal outlook and inflation expectations) and technical factors (such as position adjustments and liquidity pressures), and to assess the role of supply-demand imbalances.
The bank notes that the answers to this question will directly inform the Treasury's assessment of future coupon issuance strategy, and the framing of the question itself may also convey the Treasury's implicit judgment on long-end supply pressure.
Fed Balance Sheet: A New Variable After the Policy Pause
The Federal Reserve's demand for Treasury holdings is an important reference for the Treasury's debt management strategy.
The report notes that the previous quarter's questionnaire already sought dealer views on the Fed's balance sheet, but the market environment has since seen new changes — the Fed has paused its reserve management bond purchases, and the latest developments in money markets may also require updated assessment.
Therefore, the Treasury may use this questionnaire to seek dealers' latest views on the Fed's balance sheet trajectory, progress of relevant working groups, and policy changes that could affect reserve demand.
Repo Market Mechanism: Long-Term Layout, Limited Short-Term Impact
The report also mentions that the Treasury may further seek views on design details of repo investment programs.
This topic was discussed in detail by the Treasury at this year's US Treasury market conference, showing its strong policy interest.
In addition, the questionnaire may follow up on last quarter's Treasury Borrowing Advisory Committee (TBAC) research on intraday repo, asking dealers about their willingness to participate and potential uses.
However, Deutsche Bank explicitly points out that repo-related issues are part of the Treasury's long-term layout to enhance market liquidity and resilience, carry low information content regarding near-term debt management changes, and have limited short-term market impact — investors need not overinterpret them.
Overall, Deutsche Bank believes the core focus of this Treasury refunding questionnaire lies in two dimensions: first, whether the long-end buyback expansion will become permanent and how the Treasury will optimize operation size; second, whether the questionnaire addresses long-end issuance cuts or even the fate of 20-year bonds, which will be the most direct basis for the market to judge the Treasury's policy direction.
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