Treasury Maintains Long-Term Debt Sales, Sees Rise in 2018

Updated on
  • Sees boost to coupon-bearing, FRN sales at next announcement
  • Long-term sales to raise $19.3 billion new cash this quarter

The U.S. Department of the Treasury building stands in Washington, D.C.

Photographer: Andrew Harrer

The U.S. Treasury Department maintained longer-term debt sales for the seventh straight quarter at $62 billion and said it anticipates announcing an increase in coupon-bearing securities in February to help meet rising funding needs.

The department will sell $24 billion in three-year notes on Nov. 7, $23 billion in 10-year notes on Nov. 8 and $15 billion in 30-year bonds on Nov. 9, it said Wednesday in its quarterly refunding announcement of longer-term debt sales. That will raise new cash of about $19.3 billion.

Treasury said its borrowing needs will increase as the Federal Reserve reduces its balance sheet and as fiscal deficits look set to widen. The department expects to announce at the next quarterly refunding announcement in February its plans to gradually increase sale sizes for nominal coupon-bearing securities and two-year floating-rate notes.

These changes will probably stabilize the weighted-average maturity, which the government sees as beneficial, because extending it further appears to have diminishing benefits, acting Assistant Secretary for Financial Markets Monique Rollins said at a press briefing in Washington.

What Will Increase?

Treasury is still considering which bond maturities it will increase at the February announcement and by how much, and its decision will also take into account the fiscal outlook and feedback from market participants, said Rollins. Increasing the amount of bills being issued is also part of the strategy, she said.

The Treasury Borrowing Advisory Committee, in the minutes of its latest meeting also released Wednesday, said its analysis shows a focus on increased issuance in two-year, three-year and five-year maturities “is attractive.” Rollins said that Treasury saw the input from TBAC as “helpful.”

Ahead of Wednesday’s refunding statement, most primary dealers indicated that they expected Treasury to boost coupon-bearing debt auction sizes by the first quarter of 2018 if it refrained from doing so this year. A rise in longer-term debt sales would be the first increase since November 2009. Debt-ceiling constraints and a slow start last month to the Fed’s balance-sheet runoff mean that Treasury has room to stick with bills for now, a majority of analysts said.

In its statement Wednesday, Treasury said the government will be able to meet its payment obligations through January, using extraordinary measures if Congress doesn’t extend the current debt-limit suspension period or raise the cap by Dec. 8. An array of special accounting maneuvers normally gives Treasury several weeks or months after the debt cap is reached to keep funding the government without breaching its borrowing authority.

Widening Deficit

The U.S. posted its largest budget deficit since 2013 in the fiscal year that just ended on Sept. 30, and most economists predict that President Donald Trump’s tax-reform plan will worsen deficits. The bigger budget shortfalls they foresee would add to the more than $10 trillion-plus rise in federal debt over the next decade that the Congressional Budget Office is already forecasting. Treasury issuance would need to rise if the budget shortfall increases.

The Treasury statement didn’t discuss ultra-long bond issuance, nor had Treasury instructed TBAC to specifically address the topic in preparation for its meeting.

Treasury Secretary Steven Mnuchin this week said he hasn’t seen much demand for issuing ultra long-term debt after his department examined investor enthusiasm for maturities of more than 30 years. The government typically seeks regular and steady demand for its bond issuance, and Mnuchin has said a one-time sale for an ultra-long bond isn’t an option.

Rollins reiterated investors showed little appetite for an ultra-long bond, but that the department will “keep an eye” out if demand starts growing for longer-dated securities.

The idea of introducing a two-month bill is still on the table, although Treasury sees no pressing need for it, said Fred Pietrangeli, a senior debt management official at Treasury, at the press briefing on Wednesday.

— With assistance by Saleha Mohsin, and Brian Chappatta

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