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U.S. to Sell $78 Billion in Long-Term Debt Next Week

The Treasury Department
An emblem decorates a vault door inside the Treasury Department in Washington, D.C. Photographer: Andrew Harrer/Bloomberg

The U.S. plans to sell $78 billion in its quarterly sales of notes and bonds next week, down $3 billion from three months ago, as a growing economy allowed the government to cut long-term borrowing for the first time since 2007.

The Treasury Department will auction $38 billion in three-year notes on May 11, $24 billion in 10-year notes May 12 and $16 billion in 30-year bonds May 13. The total amount was less than the median forecast in a Bloomberg News survey of bond dealers.

The U.S. starting to scale back borrowing, after expanding debt sales to finance annual budget deficits exceeding $1 trillion. Bond dealers expect the 2010 shortfall to be smaller than the official $1.6 trillion White House forecast, and the Treasury indicated that tax revenue is increasing as the economy recovers from a recession.

“We retain the flexibility to cut borrowing across the nominal coupon curve going forward,” said Matthew Rutherford, the Treasury’s deputy assistant secretary for federal finance.

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

TIPS Auctions

The Treasury also added 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 add a second reopening of 10-year TIPS notes, which would start in July if implemented, resulting in six 10-year TIPS auctions a year, the Treasury said.

“Treasury will continue to consider other changes to the TIPS auction calendar,” the department said.

At a press conference in Washington, Treasury Assistant Secretary for Financial Markets Mary Miller said the government is seeing improvement in tax receipts from corporate profits and withholdings for income such as capital gains.

She said Treasury auction data recently show “strong” interest in U.S. debt and that the government’s auction calendar needs to be “gradual and flexible” in the months ahead, with initial reductions in short- and medium-term securities.

To help manage short-term borrowing needs, the Treasury said it plans to sell cash-management bills in the current quarter. The department also said it would publish coupon investor-class data twice a month, an increase from the current monthly schedule.

Cash Raised

Next week’s auctions of bonds and notes will raise $47.1 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 declined from the $81 billion in notes and bonds sold at the previous refunding in February.

“The initial round of coupon reductions was more aggressive than we expected” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.

The cutbacks reflect the recommendation of the Treasury Borrowing Advisory Committee, a panel of bond market investors, that the government concentrate the reductions “in the two- to five-year range with only modest reductions in longer-dated issues,” Crandall said.

Earlier this week, the Treasury raised its estimate for government borrowing from April through June by 27 percent to include financing for bills sold on behalf of the Federal Reserve.

Borrowing Needs

Borrowing will total a net $340 billion in the current quarter, compared with an estimate three months ago of $268 billion, the department said in a statement today in Washington. The Treasury also projected borrowing of $376 billion in the three months to Sept. 30.

The U.S. is financing a budget deficit the Obama administration projected will reach a record $1.6 trillion this year, even as the economy recovers from a recession. In a survey provided to the Treasury before this week’s announcements, bond dealers predicted a $1.38 trillion shortfall in fiscal year 2010 and a $1.18 trillion deficit in fiscal year 2011.

The U.S. economy expanded at a 3.2 percent annual rate in the first quarter, capping the biggest six-month gain since 2003, figures from the Commerce Department showed last week.

Bond 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.

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