The US Treasury plans to sell a record $75 billion in its quarterly auctions of debt next week and indicated plans to expand inflation-indexed securities next year as it finances unprecedented budget deficits.
The Treasury plans to auction $37 billion in three-year notes on Aug. 11, $23 billion in 10-year notes August 12 and $15 billion in 30-year bonds August 13. The amounts matched the median forecast of analysts surveyed by Bloomberg News.
The Treasury’s current borrowing calendar is “sufficient” to meet the government’s needs and auction sizes are likely to rise in a “gradual manner” over the medium term, a Treasury statement in Washington said today. The Treasury signaled that issuance of Treasury Inflation-Protected Securities will rise in fiscal year 2010, and said it would consider replacing the 20- year TIPS with a 30-year security.
“Near-term financing needs will rise as a result of weakness in the economy,” Karthik Ramanathan, the department’s debt-management director, told the Treasury Borrowing Advisory Committee yesterday, according to minutes of the meeting. The Treasury is “well-poised to meet the balance of its financing requirements not only for the remainder of the year but also fiscal 2010.”
The Treasury also said it expects to run up against the debt ceiling, which currently stands at $12.1 trillion, in the last three months of the 2009 calendar year. The Treasury said it would keep Congress and the markets apprised of developments, “given the uncertainty surrounding potential borrowing needs.”
Treasury Secretary Timothy Geithner has pledged to return the budget shortfall to sustainable levels by 2013. Even so, the International Monetary Fund projects the US will swell its deficit to the highest level as a share of gross domestic product among the Group of Seven industrial nations.
In a briefing with reporters today, Matthew Rutherford, the Treasury’s deputy assistant secretary for federal finance, said the government remains committed to reducing the budget shortfall. The department is hearing growing interest for TIPS, he said, declining to comment about any potential purchases by China or other individual buyers.
Rutherford also said the Treasury is committed to keeping the size of a supplemental financing programme with the Federal Reserve at $200 billion.
On August 3, the Treasury cut its borrowing estimate for the July-to-September quarter to $406 billion, as spending on banking and housing rescue efforts is less than anticipated. The department cited lower purchases of Fannie Mae and Freddie Mac preferred stock, as well as banks repaying money from the Troubled Asset Relief Program.
“The borrowing pressure on them remains acute,” said William O’Donnell, US government bond strategist at RBS Securities Inc in Stamford, Connecticut. “They seem to be satisfied with the current suite of nominal issuance. There doesn’t seem to be any imminent threat of bringing a new Treasury security.”
The Chinese government and other investors have expressed concerns that the inflation-indexed market may not be as strong as the broader Treasury sector, O’Donnell said.
“Increased supply will help increase depth and liquidity,” O’Donnell said.
“The Treasury now recognises that and appears committed to doing something.”
In a Bloomberg News survey of seven analyst forecasts, the median estimate for next week’s auctions was $37 billion in three-year note sales, $23 billion in 10-year note sales and $15 billion in bond sales.
To help manage short-term borrowing needs, the Treasury said it plans to sell cash-management bills in the current quarter, with some of them “longer dated” securities.
Next week’s auctions of bonds and notes will raise $14.1 billion in new cash, with the rest of the proceeds going to pay off maturing debt, the Treasury said.
For the first nine months of the current fiscal year, which ends September 30, the deficit reached $1.1 trillion. The gap for all of fiscal 2009 is projected by the Congressional Budget Office to be $1.8 trillion, as the Obama administration spends to reverse the worst US economic slump since the Great Depression.
This quarter’s total long-term debt sales exceeded the $71 billion in notes and bonds sold at the last refunding in May, when the Treasury expanded its sales of 30-year bonds to once a month, up from eight auctions per year.
