Nov. 5 (Bloomberg) -- The U.S. Treasury said it plans to sell $55 billion in long-term government debt this quarter and bring back auctions of three-year notes, as a slowing economy balloons the budget deficit to a record level.

The Treasury's quarterly refunding of longer-dated securities is the biggest in four years. Three-year notes, which had been suspended since May 2007, will now be issued on a monthly basis, the department said in Washington today. The government will also increase the frequency of 10-year and 30- year debt auctions.

Borrowing needs have surged in the wake of higher spending, a $700 billion financial rescue plan and plunge in tax receipts amid what economists estimate may be the worst recession since the early 1980s. Debt issuance may increase further after bond trading firms this week predicted the budget shortfall will more than double to $988 billion in 2009.

``These are highly uncertain times,'' Karthik Ramanathan, head of the Treasury's debt management, said in a press briefing. He said private deficit estimates ``vary greatly, and the marketable borrowing estimates are even broader,'' ranging from a projected shortfall this year of $1.1 trillion to $2.1 trillion.

The Treasury plans to auction $25 billion in three-year notes on Nov. 10, $20 billion in 10-year notes Nov. 12 and $10 billion in 30-year bonds Nov. 13, the department said.

Most Since 2004

The total was in line with analysts' forecasts and was the largest quarterly figure since the first three months of 2004. The department last quarter said it was considering a second reopening of the 10-year note and a move to quarterly new issues of 30-year bonds.

In a Bloomberg News survey of six analysts, the median estimate predicted $25 billion in three-year note sales, $20 billion in 10-year-note sales and $8 billion in bond sales.

Three months ago, the Treasury's announced quarterly sales of $17 billion in 10-year notes and $10 billion in reopened 30- year bonds.

``We will continue to monitor projected financing needs and make adjustments as necessary including, but not limited to, the reintroduction or establishment of other benchmark securities,'' Ramanathan said in a statement.

The Bush administration's most recent budget forecast, issued in July, projected a $482 billion deficit for the 2009 fiscal year, which started Oct. 1. Since then, the government has taken over mortgage companies Fannie Mae and Freddie Mac, intervened to save insurance company American International Group Inc., and embarked on the bank rescue program.

$550 Billion

As a result, borrowing needs are expected to rise to a record $550 billion in the three months to Dec. 31, the Treasury said Nov. 3. That follows a $530 billion record in the July to September quarter.

``From a fiscal perspective, borrowing requirements have steadily increased,'' the Treasury said in charts prepared for its advisory committee meeting. ``The economic outlook continues to present challenges.''

The borrowing announcement noted that upcoming auctions of 10-year and 20-year Treasury Inflation Protected Securities, also known as TIPS, will help meet financing needs. In the department's meeting this week with bond dealers, there was debate over whether five-year TIPS are an effective way for the government to borrow.

Longer-Dated TIPS

``Recent cost studies as well as investor participation statistics suggest that TIPS issuance, particularly for shorter- dated TIPS, has not reduced borrowing costs nor diversified the investor base, both of which were objectives at the start of the program,'' minutes of the meeting said.

``Focusing on longer-dated TIPS may be an approach to reducing effective costs, capturing a higher inflation premium, and increasing liquidity among benchmark TIPS instruments while at the same time extending the duration of the portfolio,'' the Treasury said.

Ramanathan told reporters there were no immediate plans to change the TIPS borrowing calendar, which includes a prospective five-year note TIPS sale in April. He noted the cost studies and said the Treasury would consider their findings.

The government sells debt to finance the excess of spending over revenue. The Treasury also sells shorter-term debt on a monthly and weekly basis to manage the government's finances.

In today's announcement, the Treasury said it expects to issue cash-management bills, ``some longer dated,'' during the current quarter. The Treasury said unscheduled reopenings of government securities will be the ``exception'' in its debt management because the department has a policy of ``transparency, regularity and predictability.''

Treasury, Fed

The Treasury also has borrowed money on behalf of the Federal Reserve, which has launched a slate of new lending programs to fight the credit crunch.

Ramanathan said in the statement that the department ``strongly encourages'' financial firms to step up efforts to settle failed transactions in the secondary debt market.

``Recent market turbulence and the low level of short-term interest rates resulted in a substantial and broad increase in persistent fails in U.S. Treasury securities,'' Ramanathan said. ``Other regulatory measures may be considered if private sector efforts are not implemented.''

To contact the reporter on this story: Rebecca Christie in Washington at rchristie4@bloomberg.netJohn Brinsley in Washington at jbrinsley@bloomberg.net

Last Updated: November 5, 2008 10:52 EST