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Treasury To Cut Auction Sizes More Than Expected

Treasury To Cut Auction Sizes More Than Expected

The US Treasury said on Wednesday, just hours before the Fed unveils its balance sheet-busting…



Treasury To Cut Auction Sizes More Than Expected

The US Treasury said on Wednesday, just hours before the Fed unveils its balance sheet-busting Quantitative Tightening, that it trimmed its quarterly sale of longer-term debt for a third straight quarter (with the largest cuts coming in the seven-year and 20-year maturities) and also warned that it may make further reductions, citing “strong” federal tax revenues.

The Treasury said it was trimming issuance by smaller increments than in previous quarters based on projected funding needs that include strong tax receipts and potential redemptions of Treasury securities as par tof the Fed's QT.

Specifically, the Treasury announces refunding debt sales next week totaling $103BN, down $7BN from $110BN in February,  to refund approximately $47.8 billion of privately-held Treasury notes maturing on May 15, 2022 and plans to reduce sizes for all fixed-rate nominal auctions during the quarter. This marks the longest string of quarterly cuts since a 2014-2015 cycle. In a surprise for some dealers, it’s also trimming sales of two-year, three-year and five-year auctions in coming months (see below). The refunding issuance will raise new cash of approximately $55.2 billion; the details are as follows:

  • Treasury to sell $45b of 3-year notes on May 10, down $5BN from the Feb refunding
  • Treasury to sell $36b of 10-year notes on May 11, down $1BN from the Feb refunding
  • Treasury to sell $22b of 30-year bonds on May 12, the same amount as the Feb refunding.

Next week's $103BN refunding is the smallest since May 2020, and compares with a peak of $126BN first reached in February 2021; auction sizes across the curve began rising in 2018 to finance tax cuts and surged in 2020 to finance federal pandemic response

Over the next three months, the Treasury anticipates incrementally reducing the size of each of the 2-, 3-, and 5-year note auctions by $1 billion per month.  As a result, the size of the 2-, 3-, and 5-year note auctions will each decrease by $3 billion by the end of July.  Treasury also anticipates reducing the size of the 7-year note auction by $2 billion per month.  As a result, the size of the 7-year note auction will decrease by $6 billion by the end of July. Treasury also anticipates decreases of $1 billion to both the new and reopened 10-year note auction sizes and to the new and reopened 30-year bond auction sizes starting in May.  Treasury also anticipates decreases of $2 billion to both the new and reopened 20-year bond auction sizes starting in May. For the 20-year bond, Treasury announced sizes of $17b/$14b/$14b for new issue and reopenings; dealer estimates ranged from unchanged ($19b/$16b/$16b) to as low as $15b/$12b/$12b over May, June and July. In addition, Treasury anticipates maintaining the May and June reopening 2-year FRN auction sizes and maintaining the July new issue 2-year FRN auction size.

Or visually:

Separately, changes in nominal and FRN auction sizes will reduce issuance to private investors by $69b compared to the previous quarter. TIPS auctions during the quarter will include a $14b 10-year reopening in May, an $18b 5-year reopening in June and a $17b 10-year new issue in July. The June 5-year TIPS reopening and the July 10-year TIPS new issue will each increase by $1BN.

“Given Treasury’s desire to stabilize the share of TIPS as a percent of total marketable debt outstanding and continued robust demand, Treasury will continue to monitor TIPS market conditions and consider whether subsequent modest increases would be appropriate,” Treasury says.

The Treasury said on Monday it expects to pay down $26 billion in debt the second quarter, down from a January borrowing estimate of $66 billion, primarily because of an increase in receipts. The second-quarter estimate assumes an end-of-June cash balance of $800 billion.

As Bloomberg notes, dealers had widely expected the reduction to next week’s sale of notes and bonds, but viewed it as likely to be the last cutback ahead of the Federal Reserve’s move to shrink its $5.8 trillion stockpile of Treasuries. The Fed is forecast to unveil its bond-portfolio runoff plan later on Wednesday, and that process was seen forcing the Treasury to have to sell more debt to the public.

The U.S. government had increased auction sizes in 2020 to pay for coronavirus-related spending; however, since November 2021, Treasury has made substantial progress towards aligning issuance with intermediate-term borrowing needs by reducing auction sizes across all nominal coupon securities. During this period, it said it "also received important information regarding Treasury’s projected borrowing needs, most notably recent strong tax receipts and public communications from the Federal Open Market Committee regarding potential redemptions of Treasury securities from the Federal Reserve System Open Market Account (SOMA)." 

Based on this updated information, "Treasury intends to continue reducing auction sizes of nominal coupon securities during the upcoming May – July 2022 quarter, though by smaller increments than in previous quarters.  While the issuance plans announced today leave Treasury well positioned to finance additional privately-held net marketable borrowing needs resulting from potential SOMA redemptions and to address potential changes to the fiscal outlook, additional reductions in future quarters may be necessary depending on future developments in projected borrowing needs", the Treasury said, referring to the Fed's intention to stop rolling over all of the maturing Treasury securities in its System Open Market Account

Treasury plans to address any seasonal or unexpected variations in borrowing needs over the next quarter through changes in regular bill auction sizes and/or CMBs.

There was another surprise announcement: regarding bills, the Treasury said it plans to change the 4-month cash management bill into a weekly benchmark offering, with details to be provided at the August refunding announcement. Some more details:

Given the outlook for T-bill supply over the intermediate to long term and after gathering feedback from a variety of market participants, including the primary dealers and the Treasury Borrowing Advisory Committee, later this year Treasury intends to change the 4-month (i.e., 17-week) CMB into a benchmark bill (part of the regular weekly bill issuance schedule going forward).  Investor reception to the 4-month CMB has been strong, and elevation to benchmark status will further support demand.

Over the coming months, Treasury plans to make necessary operational and systems changes in order to smoothly transition the 4-month CMB to benchmark status.  During this transition, Treasury will continue to issue the 4-month CMB at a regular cadence.  Treasury also intends to maintain the Tuesday settlement and maturity cycle when the 4-month CMB becomes a benchmark bill.  Additional implementation details, including the likely timing of the first benchmark auction, will be provided at the August quarterly refunding.

Looking ahead, the Treasury made two preview announcement: i) it intends to issue in the coming months a request for information about possible steps to improve transparency for secondary market transactions in its securities and encourages market participants and the broader public to respond; and ii) the Treasury is planning amendments to auction regulations in coming months, including an increase in the non- competitive bidding and award limits for all securities to $10MM from $5MM in light of growth in auction sizes.

Separately, the minutes of the all-important Treasury Borrowing Advisory Committee (TBAC) latest meeting indicated the following:

  • In light of the strength in federal tax receipts, as well as the prospect for Federal Reserve balance sheet reductions, the Committee recommended that Treasury should continue with coupon auction size reductions across tenors during the upcoming refunding quarter, with slightly larger reductions in the 7-year note and 20-year bond, but at a slower pace than cuts announced in November and February
  • They noted reductions to nominal coupon issuance would likely maintain the share of bills within, but toward the lower end of, its recommended 15%-20% range over time
  • Committee emphasized the need for Treasury to remain nimble in its debt management decisions, given the ongoing uncertainty in borrowing needs
  • Also said the strength in receipts should be monitored to determine if it is “more of an anomaly or a trend that could warrant additional cut to coupons in the subsequent quarters”
  • Committee heard a presentation on Treasury market trading conditions since the beginning of the year and how evolving inflation and monetary policy expectations, as well as heightened geopolitical tensions affected market volatility and liquidity
  • Presenting member stated that while liquidity conditions since the beginning of the year appeared worse based on some metrics, other metrics showed no significant deterioration, and funding markets were functioning properly and weren’t a factor in strained liquidity conditions
  • Lower liquidity was largely due to elevated volatility as a result of the elevated uncertainty around the inflation, monetary policy, and geopolitical outlook
  • Committee then discussed the presentation, with several members noting that liquidity conditions could also be affected by the Federal Reserve’s balance sheet reduction
  • TBAC then turned to a presentation on the four-month, or 17-week cash management bill (CMB)
  • Presenting member noted that Treasury should take into account the trajectory of future bill issuance, current and future demand for the 4-month CMB compared to benchmark bills, and whether this benchmark offering would complement the current debt management process
  • Based on the projected growth in bill issuance in the longer term, strong expected future demand, and the compatibility of the 4-month bill issuance patterns and maturities for both investors and Treasury, the presenting member recommended that Treasury should consider moving the 4-month CMB to benchmark status
  • The Committee unanimously supported the recommendation to make the 4-month bill a benchmark tenor

In response to the Refunding announcement, Treasuries did, well... nothing, holding on to gains across belly and long-end of the curve. 

The 5s30s curve was around -2.2bp, remaining flatter by 0.7bp on the day, while 2s10s spread extends flattening slightly to 3bp tighter on the day. U.S. yields remain ~1bp richer across long-end of the curve with front-end underperforming, with 2- year yields cheaper by ~3bp on the day. In the long-end the 10s20s30s fly is steady around 45bp, little changed on the day after the refunding announcement.

Tyler Durden Wed, 05/04/2022 - 09:20

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The Coming Of The Police State In America

The Coming Of The Police State In America

Authored by Jeffrey Tucker via The Epoch Times,

The National Guard and the State Police are now…



The Coming Of The Police State In America

Authored by Jeffrey Tucker via The Epoch Times,

The National Guard and the State Police are now patrolling the New York City subway system in an attempt to do something about the explosion of crime. As part of this, there are bag checks and new surveillance of all passengers. No legislation, no debate, just an edict from the mayor.

Many citizens who rely on this system for transportation might welcome this. It’s a city of strict gun control, and no one knows for sure if they have the right to defend themselves. Merchants have been harassed and even arrested for trying to stop looting and pillaging in their own shops.

The message has been sent: Only the police can do this job. Whether they do it or not is another matter.

Things on the subway system have gotten crazy. If you know it well, you can manage to travel safely, but visitors to the city who take the wrong train at the wrong time are taking grave risks.

In actual fact, it’s guaranteed that this will only end in confiscating knives and other things that people carry in order to protect themselves while leaving the actual criminals even more free to prey on citizens.

The law-abiding will suffer and the criminals will grow more numerous. It will not end well.

When you step back from the details, what we have is the dawning of a genuine police state in the United States. It only starts in New York City. Where is the Guard going to be deployed next? Anywhere is possible.

If the crime is bad enough, citizens will welcome it. It must have been this way in most times and places that when the police state arrives, the people cheer.

We will all have our own stories of how this came to be. Some might begin with the passage of the Patriot Act and the establishment of the Department of Homeland Security in 2001. Some will focus on gun control and the taking away of citizens’ rights to defend themselves.

My own version of events is closer in time. It began four years ago this month with lockdowns. That’s what shattered the capacity of civil society to function in the United States. Everything that has happened since follows like one domino tumbling after another.

It goes like this:

1) lockdown,

2) loss of moral compass and spreading of loneliness and nihilism,

3) rioting resulting from citizen frustration, 4) police absent because of ideological hectoring,

5) a rise in uncontrolled immigration/refugees,

6) an epidemic of ill health from substance abuse and otherwise,

7) businesses flee the city

8) cities fall into decay, and that results in

9) more surveillance and police state.

The 10th stage is the sacking of liberty and civilization itself.

It doesn’t fall out this way at every point in history, but this seems like a solid outline of what happened in this case. Four years is a very short period of time to see all of this unfold. But it is a fact that New York City was more-or-less civilized only four years ago. No one could have predicted that it would come to this so quickly.

But once the lockdowns happened, all bets were off. Here we had a policy that most directly trampled on all freedoms that we had taken for granted. Schools, businesses, and churches were slammed shut, with various levels of enforcement. The entire workforce was divided between essential and nonessential, and there was widespread confusion about who precisely was in charge of designating and enforcing this.

It felt like martial law at the time, as if all normal civilian law had been displaced by something else. That something had to do with public health, but there was clearly more going on, because suddenly our social media posts were censored and we were being asked to do things that made no sense, such as mask up for a virus that evaded mask protection and walk in only one direction in grocery aisles.

Vast amounts of the white-collar workforce stayed home—and their kids, too—until it became too much to bear. The city became a ghost town. Most U.S. cities were the same.

As the months of disaster rolled on, the captives were let out of their houses for the summer in order to protest racism but no other reason. As a way of excusing this, the same public health authorities said that racism was a virus as bad as COVID-19, so therefore it was permitted.

The protests had turned to riots in many cities, and the police were being defunded and discouraged to do anything about the problem. Citizens watched in horror as downtowns burned and drug-crazed freaks took over whole sections of cities. It was like every standard of decency had been zapped out of an entire swath of the population.

Meanwhile, large checks were arriving in people’s bank accounts, defying every normal economic expectation. How could people not be working and get their bank accounts more flush with cash than ever? There was a new law that didn’t even require that people pay rent. How weird was that? Even student loans didn’t need to be paid.

By the fall, recess from lockdown was over and everyone was told to go home again. But this time they had a job to do: They were supposed to vote. Not at the polling places, because going there would only spread germs, or so the media said. When the voting results finally came in, it was the absentee ballots that swung the election in favor of the opposition party that actually wanted more lockdowns and eventually pushed vaccine mandates on the whole population.

The new party in control took note of the large population movements out of cities and states that they controlled. This would have a large effect on voting patterns in the future. But they had a plan. They would open the borders to millions of people in the guise of caring for refugees. These new warm bodies would become voters in time and certainly count on the census when it came time to reapportion political power.

Meanwhile, the native population had begun to swim in ill health from substance abuse, widespread depression, and demoralization, plus vaccine injury. This increased dependency on the very institutions that had caused the problem in the first place: the medical/scientific establishment.

The rise of crime drove the small businesses out of the city. They had barely survived the lockdowns, but they certainly could not survive the crime epidemic. This undermined the tax base of the city and allowed the criminals to take further control.

The same cities became sanctuaries for the waves of migrants sacking the country, and partisan mayors actually used tax dollars to house these invaders in high-end hotels in the name of having compassion for the stranger. Citizens were pushed out to make way for rampaging migrant hordes, as incredible as this seems.

But with that, of course, crime rose ever further, inciting citizen anger and providing a pretext to bring in the police state in the form of the National Guard, now tasked with cracking down on crime in the transportation system.

What’s the next step? It’s probably already here: mass surveillance and censorship, plus ever-expanding police power. This will be accompanied by further population movements, as those with the means to do so flee the city and even the country and leave it for everyone else to suffer.

As I tell the story, all of this seems inevitable. It is not. It could have been stopped at any point. A wise and prudent political leadership could have admitted the error from the beginning and called on the country to rediscover freedom, decency, and the difference between right and wrong. But ego and pride stopped that from happening, and we are left with the consequences.

The government grows ever bigger and civil society ever less capable of managing itself in large urban centers. Disaster is unfolding in real time, mitigated only by a rising stock market and a financial system that has yet to fall apart completely.

Are we at the middle stages of total collapse, or at the point where the population and people in leadership positions wise up and decide to put an end to the downward slide? It’s hard to know. But this much we do know: There is a growing pocket of resistance out there that is fed up and refuses to sit by and watch this great country be sacked and taken over by everything it was set up to prevent.

Tyler Durden Sat, 03/09/2024 - 16:20

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Another beloved brewery files Chapter 11 bankruptcy

The beer industry has been devastated by covid, changing tastes, and maybe fallout from the Bud Light scandal.



Before the covid pandemic, craft beer was having a moment. Most cities had multiple breweries and taprooms with some having so many that people put together the brewery version of a pub crawl.

It was a period where beer snobbery ruled the day and it was not uncommon to hear bar patrons discuss the makeup of the beer the beer they were drinking. This boom period always seemed destined for failure, or at least a retraction as many markets seemed to have more craft breweries than they could support.

Related: Fast-food chain closes more stores after Chapter 11 bankruptcy

The pandemic, however, hastened that downfall. Many of these local and regional craft breweries counted on in-person sales to drive their business. 

And while many had local and regional distribution, selling through a third party comes with much lower margins. Direct sales drove their business and the pandemic forced many breweries to shut down their taprooms during the period where social distancing rules were in effect.

During those months the breweries still had rent and employees to pay while little money was coming in. That led to a number of popular beermakers including San Francisco's nationally-known Anchor Brewing as well as many regional favorites including Chicago’s Metropolitan Brewing, New Jersey’s Flying Fish, Denver’s Joyride Brewing, Tampa’s Zydeco Brew Werks, and Cleveland’s Terrestrial Brewing filing bankruptcy.

Some of these brands hope to survive, but others, including Anchor Brewing, fell into Chapter 7 liquidation. Now, another domino has fallen as a popular regional brewery has filed for Chapter 11 bankruptcy protection.

Overall beer sales have fallen.

Image source: Shutterstock

Covid is not the only reason for brewery bankruptcies

While covid deserves some of the blame for brewery failures, it's not the only reason why so many have filed for bankruptcy protection. Overall beer sales have fallen driven by younger people embracing non-alcoholic cocktails, and the rise in popularity of non-beer alcoholic offerings,

Beer sales have fallen to their lowest levels since 1999 and some industry analysts

"Sales declined by more than 5% in the first nine months of the year, dragged down not only by the backlash and boycotts against Anheuser-Busch-owned Bud Light but the changing habits of younger drinkers," according to data from Beer Marketer’s Insights published by the New York Post.

Bud Light parent Anheuser Busch InBev (BUD) faced massive boycotts after it partnered with transgender social media influencer Dylan Mulvaney. It was a very small partnership but it led to a right-wing backlash spurred on by Kid Rock, who posted a video on social media where he chastised the company before shooting up cases of Bud Light with an automatic weapon.

Another brewery files Chapter 11 bankruptcy

Gizmo Brew Works, which does business under the name Roth Brewing Company LLC, filed for Chapter 11 bankruptcy protection on March 8. In its filing, the company checked the box that indicates that its debts are less than $7.5 million and it chooses to proceed under Subchapter V of Chapter 11. 

"Both small business and subchapter V cases are treated differently than a traditional chapter 11 case primarily due to accelerated deadlines and the speed with which the plan is confirmed," explained. 

Roth Brewing/Gizmo Brew Works shared that it has 50-99 creditors and assets $100,000 and $500,000. The filing noted that the company does expect to have funds available for unsecured creditors. 

The popular brewery operates three taprooms and sells its beer to go at those locations.

"Join us at Gizmo Brew Works Craft Brewery and Taprooms located in Raleigh, Durham, and Chapel Hill, North Carolina. Find us for entertainment, live music, food trucks, beer specials, and most importantly, great-tasting craft beer by Gizmo Brew Works," the company shared on its website.

The company estimates that it has between $1 and $10 million in liabilities (a broad range as the bankruptcy form does not provide a space to be more specific).

Gizmo Brew Works/Roth Brewing did not share a reorganization or funding plan in its bankruptcy filing. An email request for comment sent through the company's contact page was not immediately returned.


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Revving up tourism: Formula One and other big events look set to drive growth in the hospitality industry

With big events drawing a growing share of of tourism dollars, F1 offers a potential glimpse of the travel industry’s future.




Sergio Perez of Oracle Red Bull Racing, right, and Charles Leclerc of the Scuderia Ferrari team compete in the Las Vegas Grand Prix on Nov. 19, 2023. Tayfun Coskun/Anadolu via Getty Images

In late 2023, I embarked on my first Formula One race experience, attending the first-ever Las Vegas Grand Prix. I had never been to an F1 race; my interest was sparked during the pandemic, largely through the Netflix series “Formula 1: Drive to Survive.”

But I wasn’t just attending as a fan. As the inaugural chair of the University of Florida’s department of tourism, hospitality and event management, I saw this as an opportunity. Big events and festivals represent a growing share of the tourism market – as an educator, I want to prepare future leaders to manage them.

And what better place to learn how to do that than in the stands of the Las Vegas Grand Prix?

A smiling professor is illuminated by bright lights in a nighttime photo taken at a Formula 1 event in Nevada.
The author at the Las Vegas Grand Prix. Katherine Fu

The future of tourism is in events and experiences

Tourism is fun, but it’s also big business: In the U.S. alone, it’s a US$2.6 trillion industry employing 15 million people. And with travelers increasingly planning their trips around events rather than places, both industry leaders and academics are paying attention.

Event tourism is also key to many cities’ economic development strategies – think Chicago and its annual Lollapalooza music festival, which has been hosted in Grant Park since 2005. In 2023, Lollapalooza generated an estimated $422 million for the local economy and drew record-breaking crowds to the city’s hotels.

That’s why when Formula One announced it would be making a 10-year commitment to host races in Las Vegas, the region’s tourism agency was eager to spread the news. The 2023 grand prix eventually generated $100 million in tax revenue, the head of that agency later announced.

Why Formula One?

Formula One offers a prime example of the economic importance of event tourism. In 2022, Formula One generated about $2.6 billion in total revenues, according to the latest full-year data from its parent company. That’s up 20% from 2021 and 27% from 2019, the last pre-COVID year. A record 5.7 million fans attended Formula One races in 2022, up 36% from 2019.

This surge in interest can be attributed to expanded broadcasting rights, sponsorship deals and a growing global fan base. And, of course, the in-person events make a lot of money – the cheapest tickets to the Las Vegas Grand Prix were $500.

Two brightly colored race cars are seen speeding down a track in a blur.
Turn 1 at the first Las Vegas Grand Prix. Rachel Fu, CC BY

That’s why I think of Formula One as more than just a pastime: It’s emblematic of a major shift in the tourism industry that offers substantial job opportunities. And it takes more than drivers and pit crews to make Formula One run – it takes a diverse range of professionals in fields such as event management, marketing, engineering and beyond.

This rapid industry growth indicates an opportune moment for universities to adapt their hospitality and business curricula and prepare students for careers in this profitable field.

How hospitality and business programs should prepare students

To align with the evolving landscape of mega-events like Formula One races, hospitality schools should, I believe, integrate specialized training in event management, luxury hospitality and international business. Courses focusing on large-scale event planning, VIP client management and cross-cultural communication are essential.

Another area for curriculum enhancement is sustainability and innovation in hospitality. Formula One, like many other companies, has increased its emphasis on environmental responsibility in recent years. While some critics have been skeptical of this push, I think it makes sense. After all, the event tourism industry both contributes to climate change and is threatened by it. So, programs may consider incorporating courses in sustainable event management, eco-friendly hospitality practices and innovations in sustainable event and tourism.

Additionally, business programs may consider emphasizing strategic marketing, brand management and digital media strategies for F1 and for the larger event-tourism space. As both continue to evolve, understanding how to leverage digital platforms, engage global audiences and create compelling brand narratives becomes increasingly important.

Beyond hospitality and business, other disciplines such as material sciences, engineering and data analytics can also integrate F1 into their curricula. Given the younger generation’s growing interest in motor sports, embedding F1 case studies and projects in these programs can enhance student engagement and provide practical applications of theoretical concepts.

Racing into the future: Formula One today and tomorrow

F1 has boosted its outreach to younger audiences in recent years and has also acted to strengthen its presence in the U.S., a market with major potential for the sport. The 2023 Las Vegas race was a strategic move in this direction. These decisions, along with the continued growth of the sport’s fan base and sponsorship deals, underscore F1’s economic significance and future potential.

Looking ahead in 2024, Formula One seems ripe for further expansion. New races, continued advancements in broadcasting technology and evolving sponsorship models are expected to drive revenue growth. And Season 6 of “Drive to Survive” will be released on Feb. 23, 2024. We already know that was effective marketing – after all, it inspired me to check out the Las Vegas Grand Prix.

I’m more sure than ever that big events like this will play a major role in the future of tourism – a message I’ll be imparting to my students. And in my free time, I’m planning to enhance my quality of life in 2024 by synchronizing my vacations with the F1 calendar. After all, nothing says “relaxing getaway” quite like the roar of engines and excitement of the racetrack.

Rachel J.C. Fu does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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