Every quarter, the U.S. Treasury Department releases its Quarterly Refunding Announcement (‘QRA’), which communicates changes in debt management policy and near-term plans for bond sales. It may sound pedestrian, but it can be anything but that. Consider the last two announcements:

• On July 31, 2023, the Treasury announced higher-than-anticipated borrowing needs, and signaled further increases in long-term debt sales. The 10-year U.S. Treasury (UST) yield increased 91 basis points (bps) from 3.97% (as of 7/31/23) to 4.88% (as of 10/31/23). During this period, fixed income returns were materially negative.

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• On October 31, 2023, the Treasury announced plans to slow the pace of increases in long-term debt sales and increase Treasury bill issuance. In response, the 10-year yield decreased by 89 bps from 4.88% to 3.99% between the October 2023 and January 2024 QRA releases. During this period, the broad-based Bloomberg U.S. Aggregate Bond Index (the Agg) returned 8.53%.

While the needs of the Treasury have grown steadily higher, the major buyers of the auctions—the Federal Reserve, foreign buyers, and commercial banks—all have seen reduced appetites for UST holdings (see additional information in our August and October 2023 Charts of the Month). These changing supply and demand dynamics are having a meaningful impact on interest rate volatility.