Treasury QRA, what to expect from the Fed, BTC ETF flows

This week’s Treasury Quarterly Refunding Announcements might be as impactful, if not more, than the FOMC. The announcements come in two parts, one of which already took place on Monday:

During the January – March 2024 quarter, Treasury expects to borrow $760 billion in privately-held net marketable debt, assuming an end-of-March cash balance of $750 billion.^[2] The borrowing estimate is $55 billion lower than announced in October 2023, largely due to projections of higher net fiscal flows and a higher beginning of quarter cash balance.

The lower borrowing estimate was bullish for bonds and risk as the lower supply of Treasuries and bills means financial conditions will be looser than otherwise expected. The lower borrowing estimate comes from the fact that the economy has performed better than expected, resulting in higher projected tax income.

We are also seeing an interim peak in issuance (at least until Q3 or Q4), so worries about excess coupon supply should fade into the background for the next 3-6 months. Treasuries have broken a multi-week downtrend and are now recovering.

Price on 20 yr Treasury futures, 4 hr chart

Tonight we have the second part of the QRA announcement, which will reveal the composition of Tbills vs coupons that will be auctioned. Last quarter’s QRA was bullish for the bond market because it showed that Yellen was willing to increase the share of Tbills issued in order to alleviate supply in coupons and bring relief to Treasury yields. With the presidential election coming up in November, I see no reason for Yellen to reverse course and announce larger coupon issuance than what the market is expecting. Today’s QRA announcement could provide modest support to the bond market and risk assets as we enter the FOMC.

I laid out my case for a dovish outcome in tonight’s FOMC in my post last week. I believe Powell will coax the market into pricing in a higher probability of a March cut. Instead of talking about talking about tapering QT, they might hint that QT can begin sometime in the first half of this year. I expect the tightening bias to be removed, and for references to the “real Fed funds rate” to be a justification for incoming cuts.

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Now, on to the paid section, where I discuss my tactical positioning in BTC and equities.