United States Department of the Treasury logo and U.S. flag are seen in this illustration taken April 23, 2025. REUTERS/Dado Ruvic/Illustration

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -The U.S. Treasury said on Friday it had asked dealers when they expected the Federal Reserve would end its long-running scheme to reduce the size of its bond holdings, widely known as quantitative tightening, or QT.

The survey is part of the Treasury's typical process ahead of its quarterly refunding announcement, which is due next month.

The department also sought dealers' economic, fiscal and monetary policy forecasts, including their estimates for Treasury financing for fiscal years 2026 to 2028.

The Treasury also wanted follow-up input on the U.S. 20-year bond auction schedule, which the department initially brought up in a May 2025 survey.

In response to the May survey, the Treasury said primary dealers had argued that there could be "benefits to shortening the post-auction settlement period for the 20-year bond" to address persistently higher rates in the repurchase or repo market when these bonds are used as collateral for overnight borrowings.

While the majority of primary dealers initially favored moving the settlement date closer to the auction date, one concern was the potential impact on holdings of the 20-year bond by the Fed.

On the Fed's QT, the Treasury specifically asked dealers their forecast for when the Fed will cease redemptions of Treasury securities from the SOMA (System Open Market Account) portfolio held by the Fed that includes Treasury securities and agency mortgage-backed securities (MBS).

The Treasury also wants to find out whether dealers think the Fed will begin purchasing Treasury securities with proceeds from principal payments received on its MBS holdings.

Fed Chair Jerome Powell said on Tuesday the end could be approaching for the QT.

"Some signs have begun to emerge that liquidity conditions are gradually tightening, including a general firming of repo rates along with more noticeable but temporary pressures on selected dates," Powell said at a gathering held by the National Association for Business Economics in Philadelphia.

The Treasury also asked dealers when they think the Fed would begin open market operations again to grow the size of its balance sheet, which is currently at $6.6 trillion.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Kirsten Donovan and Nick Zieminski)