U.S. Treasury to Sell $74 Billion in Long-Term Debt in Quarterly Refunding

The U.S. Treasury Department plans to sell $74 billion in its quarterly sales of long-term debt next week, as lower projected budget deficits allow the government to reduce borrowing at a “gradual pace.”

The Treasury said it will auction $34 billion in three-year notes on Aug. 10, $24 billion in 10-year notes Aug. 11 and $16 billion in 30-year bonds Aug. 12. The total amount was in line with the median forecast in a Bloomberg News survey of bond dealers.

The Treasury is starting to scale back auction sizes, after expanding debt sales to finance annual budget deficits exceeding $1 trillion for the past two years. Bond dealers expect the 2010 budget deficit to be smaller than the White House forecast for $1.47 trillion.

Matthew Rutherford, the deputy assistant secretary for federal finance, told the Treasury’s borrowing advisory committee yesterday that there is room to scale back auction sizes further, at a slower pace than the reductions so far, according to minutes of the meeting released today. “Once these cuts are complete, Treasury will likely hold auction sizes constant for a period of time to assess the fiscal outlook,” the minutes said.

In its statements, the Treasury said economic growth is leading to an improvement in tax receipts. “The ultimate magnitude of offering size reductions will depend on the pace and extent of the economic recovery,” it said.

TIPS Auctions

The Treasury also said it is considering more frequent auctions of Treasury Inflation-Protected Securities to improve liquidity in the market for securities also known as TIPS. The department said it will consult with market participants and announce plans for 2011 at its November refunding.

“Issuance will gradually increase,” the Treasury said of TIPS.

To help manage short-term borrowing needs, the Treasury said it plans to sell cash-management bills in the current quarter.

Next week’s auctions of bonds and notes will raise $41 billion in new cash, with the rest of the proceeds going to pay off maturing debt, the Treasury said.

The current quarter’s total long-term debt sales declined from the $78 billion in notes and bonds sold at the previous refunding in May.

Borrowing Needs

Earlier this week, the Treasury lowered its estimate for government borrowing from July through September, reflecting a reduction in federal spending. Borrowing will total a net $350 billion in the current quarter, compared with an estimate three months ago of $376 billion, the department said. The Treasury also projected borrowing of $380 billion in the three months to Dec. 31.

Auctions of long-term debt were projected to be smaller than the total of $78 billion sold in May, when the Treasury sold $38 billion in three-year notes, $24 billion in 10-year notes and $16 billion in 30-year bonds. The median forecast of six analysts surveyed predicted a $4 billion cut in three-year note sales, with the other two auction sizes unchanged.

Bond dealers predicted a $1.35 trillion deficit in fiscal 2010 and a $1.21 trillion deficit in 2011 in a survey provided to the Treasury before this week’s announcements. Dealers expected the Treasury to sell $39 billion in three-year notes next week, $25 billion of 10-year debt and $16 billion in 30- year bonds, according to the median estimate in a Bloomberg News survey.

“It’s more of the same for now,” said Stephen Stanley, chief economist at Pierpont Securities LLC, in an interview ahead of the announcement. “The only real question is whether they’re going to ultimately add another couple of TIPS auctions.”

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

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