Treasury’s Quiet Redesign

On Friday, January 16, 2026, the U.S. Treasury posted its Primary Dealer Meeting Agenda: 2026 – 1st Quarter as part of its quarterly refunding document set.

In that agenda, Treasury asked dealers for feedback on three market-structure topics:

These questions sit in the “market plumbing” layer: they don’t change the government’s need to borrow, but they can change how liquidity is produced and priced across the Treasury curve.

1) Fewer CUSIPs can mean less fragmentation. When issuance creates many similar-but-not-identical bonds, liquidity can splinter. Dealers and investors may end up holding positions across multiple near-maturity securities instead of concentrating activity in a smaller set of benchmarks. The agenda’s focus on reducing the number of 7-year CUSIPs is consistent with a push to reduce that fragmentation and to extend how long a single security stays “current” (on-the-run).

2) The on-the-run/off-the-run gap is a recurring liquidity pattern. On-the-run Treasuries are usually easier to trade and often serve as pricing references. Off-the-run bonds can trade “cheap” (at a higher yield) versus on-the-runs of similar maturity when investors pay for immediacy and balance-sheet capacity. A TBAC presentation on buybacks described this as a liquidity preference or premium for on-the-runs, and it pointed to periods like the early 2020 pandemic shock as an example of large dislocations between on-the-run and off-the-run pricing.

A longer on-the-run window for the 7-year note could change how that premium shows up—less like a fast baton-pass each month, more like a longer “benchmark season.” The agenda explicitly links this to futures delivery baskets (which bonds can be delivered into a futures contract) and the cash-futures connection, because those links often rely on a small set of highly tradable securities.

3) Buyback “format” affects execution, not just size. Treasury’s modern buyback program (introduced May 2024) includes liquidity support buybacks and cash management buybacks, with the aim of being price-sensitive (buying depends on the quality of offers). The TreasuryDirect FAQ adds that buybacks focus on off-the-run coupon securities and TIPS, and they generally exclude on-the-runs and bonds that are trading unusually “special” in repo or are cheapest-to-deliver into active futures.

So the agenda’s question is not “buybacks or not,” but how buybacks should clear. Yield-spread bidding frames offers as a spread to a reference point, rather than an outright price, which can matter when markets move quickly during an operation window. Exchange operations change the trade from “cash for bonds” to “bond for bond,” which can shift who participates and how on-the-run supply is felt in the market.

4) SOFR-linked FRNs tie Treasury funding to the dominant overnight rate. SOFR (Secured Overnight Financing Rate) is a broad measure of the cost of overnight secured borrowing. A Treasury SOFR-linked FRN would make coupon payments float with SOFR, potentially changing who holds the paper and how it trades versus existing Treasury FRNs. The agenda’s framing—asking about pricing and liquidity conventions in the broader SOFR-FRN market—signals that Treasury is mapping how this product behaves before considering it.

Market moves often get narrated through headlines, but Treasury markets also react to microstructure constraints: inventory capacity, benchmark scarcity, repo collateral demand, and the cost of turning positions over. The January 16 agenda is a reminder that “rates markets” are not just about the level of yields; they’re also about which specific bonds trade cleanly, which ones get stuck, and how funding markets (repo) transmit stress.

In that sense, design choices—auction cadence, CUSIP count, buyback format, and floating-rate reference rates—can influence how smoothly prices update when conditions change, even if the macro story is unchanged.

On January 16, 2026, Treasury publicly surfaced a set of “quiet redesign” questions: making the 7-year more like a longer-lived benchmark, exploring SOFR-linked FRNs, and refining buyback mechanics toward spreads or exchanges. Read through a liquidity lens, these are efforts to reduce fragmentation, support off-the-run trading, and manage how collateral and benchmarks circulate through repo, futures, and cash markets—places where small rule changes can shape big differences in day-to-day price formation.