The SIFMA Quarterly Issuance Survey forecasts total net Treasury bill, note and bond issuance to be $387.0 billion in the fourth quarter of 2010, slightly under the net $395.8 billion issued ($399.0 billion previously forecast in SIFMA’s 3Q’10 issuance survey2) in the third quarter (as a reminder, actuals include cash management balances).

Excluding the cash management bills (CMBs), total net issuance was $10.8 billion in the third quarter, compared to $(45.4) billion in 2Q’10. This jump was primarily the result of a significant increase in total issuance for the month of August (especially coupon issuance, which soared from $81 billion to $297.5 billion month over month, or m/m) plus lesser total redemptions (especially bill redemptions, which fell 21.5 percent m/m). The use of short-term CMBs has remained steady throughout the third quarter, and Treasury continues to attribute $200 billion to its Supplementary Financing Program (SFP). The total 3Q’10 net issuance of $395.8 billion was 13.1 percent higher than Treasury’s August borrowing estimate of $350 billion for the third quarter. However, the $387.0 billion forecast for 4Q’10 net issuance by survey participants is roughly in-line with Treasury’s August estimate of $380 billion for the fourth quarter.

Overall, the issuance of both shorter-term T-bills and longer-term coupons are expected to decline in 4Q²10. Notably, survey respondents forecast decreases in bill issuance to be relatively greater than decreases in issuance of notes and bonds, particularly in the case of 4-week bills. As the economic recovery continues to falter and market confidence erodes, the Federal Reserve has indicated it may implement a second stage of quantitative easing. In response, the marketplace has already largely priced in an approximate $500 billion to $1 trillion in such asset purchases.

With implementation of Dodd-Frank also well under way, regulators and industry participants alike are racing to address and meet deadlines for hundreds of studies and rulemakings, adding to overall market uncertainty and frenzy.

About the Report

A quarterly survey of SIFMA’s Primary Dealers and Government Securities Research and Strategist Committees concerning U.S. government issuance and rates forecasts. The committees are composed of trading strategists and research analysts at SIFMA member firms who specialize in the U.S. government and agency securities markets. The survey is intended to provide market participants with the current consensus expectations and median forecasts of many of the primary dealers and other firms active in the U.S. government and agency securities markets.

Credits

SIFMA Capital Markets

• Staff Advisor: Rob Toomey
• Analyst: X. Lily Hao

SIFMA Research

• Director of Statistics: Charles Bartlett