Treasuries Hold Gains Ahead of Refunding Plan, Key Economic Data
2min read Investors in U.S. Treasury securities are navigating a pivotal period as the market braces for the May 2025 refunding plan and a deluge of critical economic data. With the U.S. Treasury set to announce borrowing plans on April 30 and key indicators like GDP and employment data due in early May, the coming weeks could reshape interest rate expectations and bond yields.
The Refunding Plan: Borrowing Estimates and Market Implications
The Treasury’s refunding plan for the April–June quarter hinges on borrowing $514 billion in net marketable debt, assuming an end-of-quarter cash balance of $850 billion. This figure reflects adjustments due to lower initial cash balances and reduced Federal Reserve SOMA redemptions. However, the plan’s success depends on Congress resolving the debt limit, as any shortfall in cash balances would force borrowing cuts.
The Treasury’s auction schedule for May will maintain current nominal coupon and Floating Rate Note (FRN) sizes, with minor adjustments to TIPS and bill issuance. For instance, the 30-year TIPS auction will remain at $9 billion, while the 5-year TIPS could rise to $25 billion. Meanwhile, the 6-week bill will transition to benchmark status, aiming to boost liquidity in short-term markets.
Economic Data: A Gauntlet of Key Releases
The economic calendar in late April and early May is crowded with data that could influence Treasury yields:
- April 30: The advance Q1 GDP estimate is expected to show 0.4% growth, down from Q4’s 2.4%, reflecting tariff-driven disruptions. A weaker-than-expected print could fuel recession fears.
- May 2: The April employment report will test labor market resilience, with forecasts of 129,000 new jobs and a 4.2% unemployment rate. Wage growth remains a Fed inflation concern.
- April 30: The Core PCE Price Index, the Fed’s preferred inflation gauge, is projected to rise 0.1% in March, easing slightly from February’s 0.4% surge.
Market Dynamics and Risks
Treasury yields have held steady recently, with the 10-year note hovering around 4.0% amid mixed signals from the Fed. Investors are weighing the likelihood of further rate hikes against softening growth. The refunding plan’s execution will test liquidity in key maturities, particularly if auction sizes must be cut due to debt limit constraints.
Buyback programs, such as weekly $4 billion nominal coupon purchases, aim to offset potential market tightness. However, cash management buybacks—paused for now—may resume if bill issuance must be reduced around tax deadlines.
Conclusion: Navigating Uncertainty with Data Anchors
The coming weeks will test Treasury investors’ resolve as refunding details and economic data collide. Key takeaways include:
- Debt Limit Risks: The $850 billion cash balance assumption hinges on congressional action. A delay could force borrowing cuts, squeezing Treasury issuance and raising yields.
- Economic Soft Patch: If Q1 GDP confirms a slowdown, the Fed may pause rate hikes, supporting bonds. However, sticky inflation—exemplified by March’s 0.1% Core PCE rise—could keep the central bank cautious.
- Auction Liquidity: Maintaining current coupon sizes and introducing the 6-week benchmark aim to stabilize demand. Investors should monitor bid-to-cover ratios and yield movements post-auction.
As of April 2025, 10-year Treasury yields have declined 15 basis points from their March peak of 4.25%, signaling some relief from rate hike fears. Yet with the Fed’s terminal rate still uncertain, the path ahead remains fraught.
For now, Treasuries are a barometer of macroeconomic and fiscal risks. Investors would be wise to monitor the April 30 refunding announcement and May’s data releases closely—these events could redefine the bond market’s trajectory for months to come.
