Welcome to the Forward Guidance newsletter, brought to you by Casey Wagner, Ben Strack and Felix Jauvin. Here’s what you’ll find in today’s edition:

• Felix unpacks highlights from a Treasury meeting that recently piqued market interest. 

• You know MicroStrategy likes to buy bitcoin, but its latest plan is a bit different. 

• September’s PCE figures are here. Casey breaks down the results.

Breaking down the recent TBAC borrowing recommendations

A couple of years ago, the quarterly refunding announcements (QRA) from the Treasury Borrowing Advisory Committee (TBAC) were dry and boring meetings that only dorks like myself paid attention to. The TBAC advises the Treasury on debt issuance strategy for the upcoming quarter. 

Ever since rates came off zero and fiscal deficits exploded, however, market participants have started to pay close attention to how the government is funding itself. Supply and demand are drivers of US Treasury yields. Therefore, if more supply is coming onto the long end of the yield curve, that will have a tangible impact on market prices. 

This week, we received the last QRA before the election. With the caveat that anything from January 2025 onwards assumes a continuation of the same administration, let’s dig into what we learned from the report!

The quantity of debt to be issued

The first half of the QRA came on Monday when we received an update on the amount of debt the Treasury plans to issue for the upcoming quarter.

The Treasury anticipates the following: 

For October – December 2024:

• Targeting a Treasury General Account (TGA) drawdown from the current $886 billion to $700 billion.

• During this time, Treasury plans to issue $546 billion in net issuance.

For January – March 2025:

• Targeting a TGA balance of $850 billion, up from the previous quarter that anticipates $700 billion.

• Net borrowing of $823 billion. 

The numbers reflect a significant increase in debt issuance planned for the next couple of quarters — an increase of $277 billion. That said, the decrease in the TGA balance explains $150 billion of that marginal requirement.  

The composition of debt to be issued

The real juice of the QRA comes from getting a pulse on what the maturity profile of the debt issuance will be (essentially, how much of each maturity will make up the total borrowing amounts).

We can see the composition of debt for the next two quarters below:

A few key insights here:

• Treasury Secretary Janet Yellen has provided guidance that there are no plans for any change in long-duration issuance composition in the coming quarters. Effectively, the dollar amount of issuance for anything longer than one-year of duration is set to remain constant. 

• This means if borrowing needs increase, it is up to issuance of less than a year (T-bills) to take up the mantle of issuance. 

• Because of the incoming TGA drawdown to $700 billion, then reversal to $850 billion, a substantial increase in bill issuance will be required to fund the Treasury.

When we look at the proportion of total net issuance in recent quarters that is T-bills, we get the following:

Of note, the Treasury is forecasting an increase of proportion from 13% to 45%. This is notable, as historically the Treasury targets a long-term average of 15% to 20% of total debt being T-bills. Admittedly, this 45% weighting is likely an outlier that will be reversed in Q2 2025 when tax receipts come in and dampen the requirement for bills to take up the issuance mantle.

That said, with total Treasury debt outstanding already above the upper limit of their target range at 22%, one must wonder how long this game of avoiding surprising markets with duration can last:

— Felix Jauvin

The net money that poured into US-listed spot bitcoin ETFs on Wednesday. This $893 million flow figure came after the category welcomed $870 million to its coffers the day before. 

Those net inflows have mirrored bitcoin’s price surge to near an all-time high. The only day during which US BTC ETFs had bigger inflows was on March 12 (at ~$1 billion) — just two days before BTC peaked above $73,700.

MicroStrategy revealed yesterday that it intends to…wait for it…buy more bitcoin. 

I’d bet you weren’t on the edge of your seat, because you know that’s what the largest corporate holder of bitcoin — now with 252,220 BTC — does. But this time, the strategy looks a little different given what is dubbed as the “21/21 plan.” 

MicroStrategy plans to raise $21 billion from equity issuances through a new at-the-market facility, as well as another $21 billion by issuing fixed income securities.

The former facility is the largest of its kind in the history of US capital markets, Benchmark analyst Mark Palmer said in his latest research note.

Palmer is boosting his price target for the stock from $245 to an even $300. MSTR’s stock price was roughly $248 at 2 pm ET Thursday — up about 0.4% on the day. 

Since launching its bitcoin acquisition strategy in August 2020, MicroStrategy has used $9.9 billion (from capital markets and excess cash flow) to buy BTC, Palmer notes. The plan now is for the company to raise $10 billion in 2025, $14 billion in 2026, and $18 billion in 2027.

This phase of its strategy is “even more audacious,” the analyst adds. And it’s not exactly surprising given how successful MSTR stock has performed since adopting BTC as a reserve asset (up about 1,700%, he notes).

On the year, MSTR’s share price gain is well ahead of BTC’s rise, at 257% to 59% as of mid-day Thursday.    

The company’s BTC yield — the percentage change of the ratio between MSTR’s bitcoin holdings and its fully diluted share count — is “a more valuable metric for assessing the company’s value” than comparing MSTR’s market capitalization to its net asset value, Palmer argued. 

Company leaders said MicroStrategy’s year-to-date BTC yield is at 17.8%, below 2021’s 43.3% but higher than last year’s 7.3%.

With the 21/21 plan laid out, MicroStrategy executives raised the firm’s BTC yield annual target (for each of the next three years) from the 4-8% range to 6-10%.

We’ll be watching.

— Ben Strack

One thing that is not spooky this Halloween is the latest PCE report, which showed prices increased as expected and annual inflation inched closer to the Fed’s 2% target. 

So Powell probably isn’t having any nightmares tonight, or at least any inflation-related ones. 

Prices increased by 0.2% month over month, according to the PCE index for September. Annual inflation for the 12 months ended September came in at 2.1%. 

It’s the lowest annual rate since February 2021. August’s annual headline figure came in at 2.3% after an upward revision Thursday, so things are moving in the right direction. 

Core PCE, which excludes volatile food and energy prices, increased 0.3% in September and the annual rate is 2.7% — just a tad higher than analysts had expected, but flat from the reading we got in August. 

The print did little to move the needle on rate cut expectations for November, with fed funds futures markets calling for a 95% chance of a 25-basis point cut, per CME Group data. It’s a bit far out to speculate too much, but markets are less confident that central bankers will opt for another 25bps cut come December, pricing in a 72% likelihood. 

Remember, the latest FOMC projections show interest rates ending 2024 50bps lower than where they currently stand. But, as we’ve written about before, investors have doubts the committee will follow through.

— Casey Wagner

• Coinbase shares were trading 12% lower on the day at 2 pm ET after the exchange on Wednesday reported missing key earnings targets during the third quarter. Earnings per share came in at $0.28 vs. the expected $0.41; third quarter revenue was $1.21 billion, compared to the anticipated $1.26 billion.  

• The Trump family’s crypto business revised its fundraising goal, according to a Wednesday SEC filing. World Liberty Financial now plans to raise $30 million from investors, a 90% decrease from the original $300 million target. 

• The first cooperating government witness in Sam Bankman-Fried’s criminal trial has walked with no jail time. Nishad Singh, the former FTX director of engineering, was sentenced on Wednesday to time served, with three years of supervised release. He pleaded guilty in 2023 to six felony charges.