The US Treasury held steady its quarterly sales of longer-term debt, matching widespread expectations among bond dealers, given the standoff in Washington over expanding the government’s borrowing authority.
In a quarterly announcement on debt-management strategy released Wednesday, the Treasury Department said it “believes that current issuance sizes leave it well-positioned to address a range of potential borrowing needs” over the three months through April.
The department is now operating under the constraints of the $31.4 trillion debt ceiling, having hit the level last month and begun using special accounting maneuvers to help preserve borrowing room.
Treasury Secretary Janet Yellen has signaled to Congress that those measures shouldn’t run out before early June, and the Treasury reiterated that estimate in its refunding statement Wednesday.
While keeping the plans for longer-term Treasuries steady, the Treasury advised that issuance of shorter-dated securities may be volatile as it works to stay under the overall federal debt ceiling.
Bill Sales
“Until the debt limit is suspended or increased, debt limit-related constraints will lead to greater-than-normal variability” in the issuance of bills, the department also advised. Dealers have pointed to the importance of tax receipts in coming months as a key variable for the Treasury’s borrowing needs.
“There were few fireworks in the Treasury’s February refunding report,” Gennadiy Goldberg, a senior US rates strategist at TD Securities in New York, said in an interview. But he flagged that “ups and downs in bill issuance should be expected in the months ahead,” based on the Treasury’s comments.
Debt Limit Constraints to Raise Variability in Bill Issuance
The Treasury said it will sell $96 billion of long-term securities at its the quarterly refunding auctions next week. That’s in line with the November operation. Issuance plans for Treasury Inflation-Protected Securities, or TIPS, were also kept unchanged compared with sizes over the prior quarter.
At some point, the Federal Reserve’s continuing shrinkage of its portfolio of Treasuries is expected to force the Treasury to boost issuance of coupons, as interest-bearing securities are known. That’s after the department steadily scaled back sales from November 2021 through last August, as pandemic-relief spending was phased out.
“Eventually, coupon auctions should start to rise again, but we doubt that this will occur until after the debt ceiling is increased or suspended,” Wells Fargo & Co. economists Michael Pugliese and Angelo Manolatos wrote in a note before Wednesday’s release. The bank currently sees auctions rising starting with the November refunding.
As for next week’s auctions, they break down as follows:
- $40 billion of 3-year notes on Feb. 7
- $35 billion of 10-year notes on Feb. 8
- $21 billion of 30-year bonds on Feb. 9
- The refunding will raise about $28.9 billion in new cash
Meantime, the Treasury said it will use changes in sales of bills to deal with fluctuations in financing needs in the months ahead. A number of Wall Street dealers sees the Treasury running out of cash sometime in the third quarter.
The Treasury on Monday estimated its cash balance at $500 billion for the end of March, slightly below where it is now. It also lifted its projections for federal borrowing for the current quarter to $932 billion.
T-bills are currently hovering near the bottom of the recommended 15% to 20% share of total debt, as specified by the Treasury Borrowing Advisory Committee — a group comprising dealers, investors and other stakeholders, known as TBAC.
Also on Wednesday, the Treasury highlighted that it’s continuing to examine the idea of launching a buyback program, something that, in October, it asked dealers their views on.
Buying back less-traded securities and selling more of the current benchmarks could be one way to address continuing concerns about illiquidity in the Treasuries market. TBAC in a statement Wednesday said the Treasury “should consider buybacks to provide liquidity support to the overall Treasury market and to achieve cash management goals.”
“Treasury expects to share its findings on buybacks as part of future quarterly refundings,” the department said.
The Treasury also noted previously announced plans for providing greater transparency about trading in the Treasuries market. That will involve making enhanced trading data on nominal on-the-run Treasuries — benchmark securities such as the current 10-year note — available to the public.
The department put its support behind the work of the Financial Industry Regulatory Authority to enhance its aggregated reports and statistics on Treasury security transactions collected through Trace, its price-reporting system for bonds. On Feb. 13, FINRA’s weekly reports will be replaced with daily and monthly reports. Additionally, the volume data will be augmented to provide more detail.
Nellie Liang, the Treasury’s top domestic finance official, told Bloomberg in December that the department was set to begin releasing the new data later this year.
US Treasury Asks Dealers About Trade Data, Auction Schedule
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