Here's the one thing the bond market is hoping to avoid on Wednesday

By Vivien Lou Chen

Any sign that the Treasury might significantly increase the sizes of its future note and bond auctions could rattle traders

Traders in the bond market are bracing for a crucial update this week from the Treasury Department on its upcoming borrowing needs.

The roughly $30 trillion Treasury market has held mostly steady despite extreme tumult in other parts of the financial market and recent renewed fears of a "Sell America" approach to trading.

A big reason for this is the kinds of debt the Treasury Department has been selling to investors. That makes Wednesday's refunding announcement especially important for the bond market.

Traders are looking ahead to the Treasury Department's announcement in two days, with an eye on whether the government will increase the size of future auctions on everything but short-term bills. The overall bond market has remained largely stable partly because of the Treasury's reliance on issuing more short-term T-bills, rather than long-term bonds, to meet its borrowing needs. In 2025, T-bills made up more than 80% of total issuance, according to figures from the Securities Industry and Financial Markets Association.

The government's issuance of Treasury bills was far greater than that of notes and bonds last year.

Treasury's refunding announcement is set for 8:30 a.m. Eastern time on Wednesday - 15 minutes after the release of ADP's private-sector employment report for January - and it has the potential to create an immediate impact on the bond market, some say.

In particular, traders will be looking for whether the department keeps, removes or changes its guidance from last November, which revealed that it has started to preliminarily consider future increases to the sizes of auctions on Treasury securities ranging from the 2-year Treasury note BX:TMUBMUSD02Y through the 30-year government bond BX:TMUBMUSD30Y.

Market participants care about any significant changes to the sizes of future government-debt sales, because too much supply can drive down prices in the bond market, lead to rising Treasury yields, and create volatility if there's insufficient demand. Over the past week, the Treasury market has been affected by additional factors that include turbulent trading in the U.S. dollar and President Donald Trump's nomination of former Federal Reserve governor Kevin Warsh as the next head of the central bank. In addition, many investors have soured on U.S. assets like the dollar and equities because of the president's policies - reviving what's known as the "Sell America" trade.

Read: Here's what Trump's pick of Kevin Warsh to run the Fed means for the economy, markets and you

See also: 'Sell America' trade makes a comeback as U.S. stocks see biggest drop in months. Here's what investors need to know.

On Monday, the Treasury Department disclosed that it currently expects to borrow $574 billion in privately-held net marketable debt between January and March. That's above the $561 billion estimate made by TD Securities, and $555 billion estimate of Deutsche Bank and Jefferies.

If the Treasury Department keeps its guidance on the sizes of future auctions unchanged on Wednesday, this could push yields or market-based interest rates lower, said Gennadiy Goldberg, head of U.S. rates strategy for TD Securities in New York. But if the language is altered, "it could add to upward pressure on interest rates," and the impact would likely be immediate, he said in a phone interview on Monday.

The bond market remained relatively quiet on Monday, with Treasury yields finishing slightly higher. The benchmark 10-year yield BX:TMUBMUSD10Y rose 3.6 basis points to almost 4.28%, while the rate on the 30-year bond advanced by nearly the same magnitude to 4.9%. Meanwhile, all three major U.S. stock indexes DJIA SPX COMP closed higher, with the S&P 500 ending just shy of reaching a fresh all-time high.

TD's base-case scenario is that auctions will begin to increase in size in late 2026. Meanwhile, Thomas Simons, chief U.S. economist for Jefferies, said in a note that "we should be open-minded in setting expectations" around how the Treasury might tweak its guidance, adding that any changes "may surprise us with more detail than we usually receive."

-Vivien Lou Chen

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02-02-26 1610ET