TLT Higher on Fed, Treasury’s Quarterly Refunding

TLT Higher on Fed, Treasury’s Quarterly Refunding

Treasury supply and demand fears ease as the Fed leaves rates unchanged.

Research Lead
Reviewed by: Staff
Edited by: Ron Day

Why does the Treasury’s quarterly refunding statement matter to investors? The short answer is yields. The longer answer involves supply and demand. 

Wednesday’s funding statement from the U.S. Treasury revealed an expected skew to shorter-term bills to fund government operations with less reliance on longer-term notes and bonds. This provided some relief to the Treasury market, especially on the long end of the yield curve, as measured by the market’s favorite long-term Treasury proxy, the iShares 20+ Year Treasury ETF (TLT), which jumped nearly 2.0% on the day. 

Fed Pause, Quarterly Funding Statement Lift Treasury Prices

On related news, as was widely expected, the Federal Reserve left interest rates unchanged and kept the door open for future rates hikes, depending on economic data. 

This week’s funding statement is a divergence from the August refunding statement when the Treasury aggressively raised the auction sizes for the longer-term notes and bonds. Subsequent auctions were met with poor demand, sending yields higher and prices lower. 

Since there is market demand for short-term Treasury securities, the latest refunding statement doesn’t scare the market like the August statement did. 

The Treasury also announced a buyback program set to launch in 2024, which aims to improve bond market liquidity, providing further relief to Treasury bond investors. 

How Supply and Demand Affect Bond Prices and Yields 

When demand for bonds is high, prices rise and yields fall. When demand for bonds is low, prices decline, and yields rise. This inverse relationship between supply and demand and bond prices and yields is fundamental to fixed-income markets and influences the overall financial landscape, including interest rates and borrowing costs for governments, corporations and individuals. 

When Demand for Bonds Increases (Bond Prices Go Up) 

  • Investors want to buy more bonds, either due to economic uncertainty or the desire for safety. 
  • Central banks may reduce interest rates, making existing bonds with higher yields more attractive. 
  • As more investors compete to purchase bonds, prices rise because they are willing to pay more than the face value for the same fixed interest payments. 
  • When bond prices rise, the yield, which is fixed at the time of issuance, effectively decreases. This is known as a capital gain, or price appreciation, for bondholders. 

When Demand for Bonds Decreases (Bond Prices Go Down) 

  • Investors may expect, or be more interested in, higher yields, causing them to sell existing bonds or not buy new ones. 
  • Central banks may raise interest rates, making existing bonds with lower yields less attractive. 
  • As more bonds are offered for sale in the market, the increased supply can lead to lower prices. 
  • When bond prices fall, the yield increases because the fixed interest payments represent a higher percentage of the bond's new, lower price. This produces a capital loss, or price depreciation, for bondholders. 

Treasury Market Outlook for 2024 

The Treasury market outlook for 2024 is mixed but has potential for lower yields and higher prices. The Treasury’s buyback program set to launch in 2024 may alleviate some of the market’s liquidity challenges. When combined with a slowing economy and lower inflation, these factors can set the stage for lower yields and higher prices for Treasury securities. 

Still looming in the Treasury market background is government spending, which doesn’t appear to be slowing anytime soon. To fund this spending, the Treasury has issued $1.7 trillion in debt securities this year and is expected to issue $1.85 trillion in 2024. 

With the Treasury having to fund large government spending deficits with new bills, notes and bonds, the increasing supply of Treasuries coming on the market could continue to keep upward pressure on yields, keeping downward pressure on prices. 

Concerns about Congressional debt-ceiling standoffs and government shutdowns also erode the confidence of investors and potentially endanger the government’s credit rating on what is supposed to be the safest investment in the world. 

It's important to note that multiple factors, such as changes in interest rates, economic conditions, geopolitical conflicts and investor sentiment, can impact the prices and yields of Treasury securities and other fixed income investments. Investors need to consider these factors, in addition to their risk tolerance and investment objectives, when making investment decisions in the bond market. 

Kent Thune is Research Lead for, focusing on educational content, thought leadership, content management and search engine optimization. Before joining, he wrote for numerous investment websites, including Seeking Alpha and Kiplinger. 


Kent holds a Master of Business Administration (MBA) degree and is a practicing Certified Financial Planner (CFP®) with 25 years of experience managing investments, guiding clients through some of the worst economic and market environments in U.S. history. He has also served as an adjunct professor, teaching classes for The College of Charleston and Trident Technical College on the topics of retirement planning, business finance, and entrepreneurship. 


Kent founded a registered investment advisory firm in 2006 and is based in Hilton Head Island, SC, where he lives with his wife and two sons. Outside of work, Kent enjoys spending time with his family, playing guitar, and working on his philosophy book, which he plans to publish in the coming year.