Nov. 4 (Bloomberg) -- The U.S. Treasury Department said it plans to sell a record $81 billion in its quarterly auctions of long-term debt next week and will replace the inflation- protected 20-year bond with a reintroduced 30-year security.

The Treasury will auction $40 billion in three-year notes on Nov. 9, $25 billion in 10-year notes Nov. 10 and $16 billion in 30-year bonds Nov. 12. The amounts were in line with the median forecast of $80 billion in a Bloomberg News survey of nine analysts.

The U.S. is headed for a second straight year of budget deficits exceeding $1 trillion, and the country’s legal limit on debt may be reached next month. Treasury debt-management director Karthik Ramanathan told bond market participants this week to expect another year of government debt sales of $1.5 trillion to $2 trillion, minutes of the meeting showed today.

“Treasury debt managers will continue to remain aggressive in managing financing needs while minimizing potential market implications,” the Treasury said in a statement in Washington.

The government is on course to reach the debt limit, which currently stands at $12.1 trillion, by mid- to late-December, the department said. If the Treasury is forced to take evasive maneuvers to stay below the limit before Congress raises it, existing tools won’t create much extra room, officials said at a press conference.

Debt Limit

“Depending on the date that we hit the debt limit, they could last days or at most weeks,” compared with five or six months in previous debt-limit impasses, said Matthew Rutherford, deputy assistant Treasury secretary for federal finance.

Forecasting a precise date for a debt-ceiling collision is difficult because the government’s cash flows are “volatile,” the Treasury said, adding that it would keep markets and lawmakers apprised of developments. The government faces about $150 billion in year-end obligations, roughly the same amount that would be freed up by tapping government retirement funds and using other available emergency maneuvers.

“We’re very confident that the Congress is going to act in a timely manner,” Rutherford said. “Everyone understands the importance of standing behind the full faith and credit of the United States.”

TIPS Issuance

The Treasury said issuance of its Treasury Inflation- Protected Securities will rise “gradually” and that it is considering more frequent TIPS auctions to improve liquidity. The department announced it would sell the 30-year TIPS bond in February, with a reopening in August, in a change from its previous TIPS bond auction schedule.

There are no plans to make changes to Treasury’s nominal debt offerings, Rutherford and Ramanathan said today. The department also is not planning any sudden swings in the average maturity of its debt, which is on course to lengthen in coming years, they said.

The Treasury said it “retains the flexibility” to increase its Supplemental Financing Program, which borrows on behalf of the Federal Reserve, if needed. The department shrank the program to $15 billion outstanding from $200 billion earlier this year to make it easier to stay below the debt limit.

“Today’s refunding helps cement the notion that larger and larger bonds will be needed to help finance our ever-growing debt needs,” said George Goncalves, chief fixed-income rates strategist at primary dealer Cantor Fitzgerald LP.

‘Policy Support’

In a report to Treasury Secretary Timothy Geithner, the Treasury’s borrowing advisory committee expressed concern that a weak economy could put further pressure on the Treasury’s financing needs. “It remains unclear to what extent the economy can expand without the aid of aggressive policy support,” the panel said in its report today.

The department said it’s moving the time of regular bill auctions to 11:30 a.m. Washington time from 1 p.m. The first bill auction on the new schedule will be Nov. 9.

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 $42.5 billion in new cash, with the rest of the proceeds going to pay off maturing debt, the Treasury said.

This quarter’s total long-term debt sales exceeded the $75 billion in notes and bonds sold at the last refunding in August.

Earlier this week, the Treasury cut its estimate for government borrowing in the current quarter by 43 percent largely because of reductions in the program for helping the Fed manage its balance sheet.

$276 Billion

Borrowing will total a net $276 billion from October through December, compared with a previous estimate of $486 billion, and the department projects borrowing of $478 billion in the three months to March 31, it said in a Nov. 2 statement.

The Treasury is financing a budget deficit the Congressional Budget Office predicted in August will reach $1.38 trillion in 2010, even as the economy starts to recover. U.S. gross domestic product grew at a 3.5 percent annual pace in the July-to-September period, after falling 0.7 percent in the prior three months, Commerce Department figures showed last week.

In the Bloomberg News survey, the median estimate for next week’s auctions was $40 billion in three-year note sales, $24 billion in 10-year note sales and $16 billion in bonds.

“These figures underscore the large amount of borrowing the Treasury anticipates,” said Edward McKelvey, an economist at Goldman Sachs Group Inc., and other Goldman analysts in a research note.

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

Last Updated: November 4, 2009 12:33 EST