Treasury Sells Record $52 Billion in Debt Amid Shortage of Bills

  • Auction size surges after reaching lowest since at least 2001
  • Proceeds will help U.S. build $150 billion cash cushion

The Treasury sold $52 billion of four-week bills in its biggest regularly scheduled offering on record as it ramps up sales of short-term securities after cutting back as the U.S. approached its borrowing limit.

The bills drew a rate of 0.075 percent as the bid-to-cover ratio, a gauge of demand, fell to 3.34 from 3.46 at the previous sale. Rates on four-week bills had plunged as low as negative 0.05 percent last month amid a shortage of available debt.

The surge in issuance comes after after lawmakers late last month reached a deal to avoid a default before the Nov. 3 date when Treasury Secretary Jacob J. Lew had expected the U.S. would reach its borrowing limit. The size of bill offerings has been cut in recent months as the Treasury worked to keep under the debt ceiling. The U.S. on Oct. 27 sold $5 billion of four-week bills at a rate of 0.01 percent, matching the lowest amount offered at an auction since at least 2001.

Two bill auctions Monday received tepid interest, with a $30 billion offering of three-month debt drawing the lowest demand in more than two years. Some of the weakness may have been because the Treasury announced the record size of Tuesday’s sale half an hour before Monday’s auctions, prompting investors to step back, according to Thomas Simons, a government-debt economist in New York at Jefferies Group LLC, one of the 22 primary dealers that are obligated to bid U.S. debt sales.

Rising Rates

Yields on Treasuries have climbed this month amid rising expectations that the Federal Reserve may boost interest rates as soon as December.

“You’ve got the Fed getting ready to hike rates and you’ve got the Treasury suggesting there will be a lot more front-end supply,” said Aaron Kohli, a fixed-income strategist at Bank of Montreal, a primary dealer. “Coming out of the debt ceiling, the Treasury has ramped up auction sizes quite a bit. That kind of back and forth is not something that comes for free -- you always create a little disruption in the market.”

The U.S. also sold $12 billion in 52-week bills and $24 billion of 10-year notes on Tuesday. It will sell $16 billion of 30-year bonds on Nov. 12.

Cash Balance

The rapid pace of issuance will help the U.S. build its cash balance back to the $150 billion level recommended by the Treasury Borrowing Advisory Committee in May. The amount would allow the government to withstand the loss of market access for one week, according to the committee, which consults with the department on policy matters and whose members include representatives from Goldman Sachs Group Inc., BlackRock Inc., and JPMorgan Chase & Co. The cash reserve had fallen below $30 billion in October.

The Treasury on eight occasions in 2013 and 2014 issued $50 billion of the securities. The record for largest-ever sale of Treasuries was in September 2008 when the government sold $60 billion of cash-management bills with a 101-day maturity in the wake of the collapse of Lehman Brothers Holdings Inc., and as lawmakers debated Treasury Secretary Henry Paulson’s $700 billion bailout plan, which was the basis for the Troubled Asset Relief Program enacted the following month.

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