Treasury to Reduce 2- and 3-Year Note Sales, Dealers Say

The U.S. may reduce the size of its sales of two-and three-year Treasuries as the government’s borrowing needs fall to a seven-year low amid signs of an improving economy, according to Wall Street bond dealers.

Monthly issuance may be cut by $1 billion on the notes in the coming quarter, seven of the 22 primary dealers that act as counterparties for the Federal Reserve said in a survey. Four of the dealers forecast the Treasury will keep its sales unchanged, while 11 didn’t respond. The government said yesterday it plans to borrow $187 billion in the next quarter, down from $192 billion in the July-September period. The Treasury will announce tomorrow the sizes of the sales.

“Treasury has no need to keep issuing this much debt,” said Aaron Kohli, an interest-rate strategist in New York at BNP Paribas SA, which as a primary dealer trades with the Fed and is obligated to bid at U.S. debt sales. “It’s partly a consequence of an improving economy, along with taxation changes that have brought in more revenue than they had expected in the earlier part of the year.”

The government sold $29 billion in two-year notes on July 28, the lowest level since March 2008 and the third monthly reduction of $1 billion since April. It sold $27 billion in three-year notes July 8, the lowest level since November 2008 after three monthly drops of $1 billion from the $30 billion sold from October through April.

The 2014 budget deficit is projected at 2.8 percent of gross domestic product by the Congressional Budget Office. It is down from 9.8 percent of GDP in 2009, when President Barack Obama took office.

The U.S. economy grew at an annualized rate of 4 percent in the second quarter of this year, exceeding the median forecast of economists surveyed by Bloomberg, after a 2.1 percent contraction in the first quarter blamed in part on severe winter weather across the U.S.

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