US Ramps Up Debt Issuance, Adding Fuel to Selloff in Treasuries

The US Treasury boosted the size of its quarterly bond sales for the first time in 2 1/2 years to help finance a surge in budget deficits so alarming it prompted Fitch Ratings to cut the government’s AAA credit rating a day earlier.

The Treasury said it will sell $103 billion of longer-term securities at its so-called quarterly refunding auctions next week, an amount slightly larger than most dealers had expected. It also plans bigger sales of debt across the maturity spectrum. The announcement contributed to a selloff in Treasuries that sent 10-year yields to the highest levels since November.

The bump in issuance showcases the rising borrowing needs that contributed to Tuesday’s decision by Fitch Ratings to lower the sovereign US credit rating by one level, to AA+. Fitch said it expects US finances to deteriorate over the next three years. That’s from an already enlarged position — the Treasury is penciling in some $1 trillion worth of issuance in all this quarter.

Ahead of the announcement, dealers had also laid out expectations for stepped-up issuance of other securities, and for the boosts in sales to stretch into 2024, which the Treasury confirmed on Wednesday.

“While these changes will make substantial progress towards aligning auction sizes with intermediate- to long-term borrowing needs, further gradual increases will likely be necessary in future quarters,” the department said in a statement.

Part of that deterioration is thanks to the higher interest the Treasury now pays on its debt. The Treasury has also said its tax receipts have been weaker than expected. And in the meantime, the Federal Reserve’s continuing runoff of its holdings of Treasuries, of up to $60 billion a month, requires the government to sell more to the public.

The scale of future increases of longer-term debt issuance will depend on the fiscal picture and on how long the Fed keeps shrinking its bond portfolio, the Treasury said Wednesday.

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