For the first time since Janet Yellen inaugurated conciliatory language to placate an irritable market early in 2024, Treasury’s quarterly refunding announcement tipped higher coupon auction sizes, if only at a distance.

I know, I know: Stop the presses. This sort of quasi-arcana’s the bane of my editorial existence these days. There’s a subsection of the readership which believes it benefits from analysis of esoteric subject matter, but the share of readers who actually benefit from that sort of thing amounts to a subsection of a subsection.

I realize that’s condescending, but it’s true: Not one in 1,000 investors need concern themselves with something like a QRA. Alas, I set a precedent years ago for pretending everyday people need to fret about the abstruse, so here we are. I’ll keep it short.

Late in the summer of 2023, the Treasury market began to experience a paroxysm tied to oversupply concerns and worries about the read-across to America’s fiscal trajectory from intractable political dysfunction inside the Beltway. Fitch downgraded the US, the likes of Bill Ackman piled on with long-end shorts and by the end of October, the market was in a tizzy.

That episode was defined by a sharp rebuild in the term premium which stormed out of negative territory on the way to +50bps, give or take.

The figure above gives you some context for that: Even at the height of the tension, the NY Fed’s estimate was below where it stands today. But “way” back then, +50bps was a big deal.

The other thing to note about the chart is that things had already calmed down (i.e., the term premium was already negative again) by the time Yellen used the January 2024 QRA to tip an end to coupon size increases. It was the prior quarter’s QRA which stanched the bleeding.

On November 1, 2023, Treasury projected auction increases for longer-term securities that were smaller than the increases Wall Street anticipated. It was a subtle maneuver with far-reaching consequences. Colloquially, the message from Yellen was this: “I get it. You’re worried about too much long-end supply. I’m working on it.”

The wink-wink from Yellen kicked off an enormous Treasury rally. That month, the long-end ETF (TLT) posted a near 10% gain. The same product rallied 8% to close the year. As the figure above reminds you, the two-month rolling gain for November-December 2023 was among the largest in the product’s history.

So, when Yellen said, in the January 31, 2024 QRA, that Treasury “does not anticipate needing to make any further increases in nominal coupon or FRN auction sizes, beyond those being announced today, for at least the next several quarters,” it was the cherry on the sundae. The storm had already passed.

That language remained in the QRA for the duration of Yellen’s tenure at Treasury, and Scott Bessent retained it during his first QRAs which was a good thing: Because there for a minute (i.e., in and around “Liberation Day”) there were serious concerns about sponsorship for the US long-end. And anyway, Trump’s unfunded tax cuts and pervasive partisan rancor (which is currently manifesting in the longest US government shutdown on record) have kept the term premium north of 50bps which counts as “elevated” in the context of the last decade. (For the purposes of this discussion, I’m setting aside that the term premium should never be negative in theory.)

On Wednesday, in the new QRA, Yellen’s forward guidance was still there, but it was accompanied by the following caveat:

Looking ahead, Treasury has begun to preliminarily consider future increases to nominal coupon and FRN auction sizes, with a focus on evaluating trends in structural demand and assessing potential costs and risks of various issuance profiles.

Consider also this passage from the accompanying TBAC report:

Given the uncertainty of potential financing needs, the Committee was mixed on how Treasury should approach adjustments to its current forward guidance. The Committee believes that current projections could warrant increases in coupon issuance in FY2027.

So, there it is: The first official acknowledgement that the discussion has begun on increasing nominal coupon auction sizes again down the road.

If your question is whether this is a big deal, the answer’s “not really.” Coupon auction size increases are a foregone conclusion at some point, and if anything, the retention of the “for at least the next several quarters” language was probably constructive for the long-end in the near- to medium-term.

But, the nods to distant increases have to get a mention because, again, this is the first tweak to the forward guidance since early 2024.

Did I say I was going to keep this short? Sorry about that.