The US Treasury kept its quarterly auction of long-term debt, planned for next week, at a record size to help fund the government’s continuing wave of stimulus spending, though it set the stage for future reductions.
The Treasury, in a statement Wednesday, offered no major changes in its strategy for issuing notes and bonds over the coming quarter, and said it will sell $126bn of long-term securities at auctions next week. The department said sales of inflation-protected securities will rise further, amid “solid demand.”
“Continuing current issuance sizes and patterns may provide more borrowing capacity than is needed to address borrowing needs over the intermediate-to-long term,” the Treasury also said. The department said it expected to announce auction-size reductions as soon as November.
Borrowing needs are set to drop as Covid-related government relief spending subsides and lawmakers work to raise revenue to pay for multi-year spending plans for infrastructure and social programmes.
The Treasury also on Wednesday reiterated Secretary Janet Yellen’s recent warning that the department faces “considerable uncertainty” about how long it can forestall a payments default, through special accounting measures, after the federal debt ceiling was reinstated on Sunday. It said it couldn’t provide a “specific estimate of how long extraordinary measures will last.”
If Congress doesn’t raise or suspend the debt limit promptly, it runs the risk of disruptions in the market for Treasury bills, a Treasury official told reporters. Treasuries remained lower after the announcement, with 10-year yields at 1.14% in New York. Next week’s auctions, known as the quarterly refunding, break down as follows:
$58bn of three-year notes on August 10, unchanged from May; $41bn of 10-year notes on August 11, also unchanged from May; and $27bn of 30-year bonds on August 12, the same as in May. The refunding will raise $67.4bn in new cash.
Wall Street strategists have widely anticipated reductions to auction sizes, while diverging on the timing. Among the 24 primary dealers in US government securities, just three expected smaller auctions during the August-to-October quarter, with many more seeing an announcement in November.
If the Treasury does proceed with a reduction in the November-to-January period, it would be the first in more than five years.
Issuance had been climbing for years, thanks to surging federal budget deficits in the wake of former President Donald Trump’s tax cuts and, later, the emergency spending caused by the pandemic.
In Wednesday’s announcement, the Treasury also said:
Sales of Treasury Inflation Protected Securities will continue a “gradual increase,” with total gross issuance climbing by $15bn to $20bn in 2021.
30-year TIPS reopening in August will be $1bn bigger than last year.
10-year TIPS reopening in September will be $1bn bigger than in May.
Five-year TIPS new issue in October will be $1bn bigger than that in April.
Weekly issuance of six-week cash management bills will end after settlement August 19.
Weekly issuance of 17-week cash management bills will continue at least through the end of October.
Treasury has completed review of a floating rate note tied to the Secured Overnight Financing Rate, or SOFR, and “will consider” whether it’s necessary to help meet intermediate to longer-term borrowing needs.
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