US Treasury Seen Boosting Long-Term Debt Sales One Last Time

Wall Street is widely expecting the US Treasury to announce a final increase to its sales of long-term debt this week, after a steady ramp up in supply that’s sometimes tested buyers’ appetites for funding a widening budget deficit.

The Treasury Department is expected on Wednesday to follow through on its November guidance of a third round of increases in its so-called quarterly refunding auctions of notes and bonds. That would put the total at $121 billion, not far from the record sizes during the Covid crisis.

With the Federal Reserve increasingly expected to slow or halt its reductions in holdings of Treasuries, US debt managers face the prospect of relief from having to tap the public for more of its financing needs. Nevertheless, the historically large budget gap means the era of giant auctions — some are at record sizes — is here to stay.

Size of US Treasury's Monthly 10 Year Note Auction

“In almost every scenario, the Treasury is going to have to keep coupon auction sizes at these levels for the next 12 to 18 months,” said Jason Williams, a global market strategist at Citigroup Inc., referring to the Treasuries that pay interest. “If they were cut too early, Treasury bills’ share of total debt would not fall back to a more ideal level.”

Treasury Secretary Janet Yellen’s debt managers turned to bills — which mature in one year or less — for the bulk of the rise in borrowing needs last year, caused by the Fed’s QT and the deficit. Bills now make up about 22% of publicly held debt outstanding, exceeding the 15% to 20% range recommended over time by a Treasury advisory panel.