Yahoo Finance US Holds Quarterly Debt Sale Steady, Details Buybacks Start
(Bloomberg) -- The US Treasury left its quarterly issuance of longer-term debt unchanged on Wednesday, with the government set to benefit from an expected slowdown in the Federal Reserve’s shrinking holdings of Treasuries.
Most Read from Bloomberg
NYPD Arrests Over 300 Protesters in Crackdown on College Campuses
US and Saudis Near Defense Pact Aimed at Reshaping Middle East
The Ozempic Effect: How a Weight Loss Wonder Drug Gobbled Up an Entire Economy
Lilly Soars as Forecast Boost Shows Weight-Loss Drugs’ Power
The Treasury Department said in a statement it will sell $125 billion of longer-term securities next week at its so-called quarterly refunding auctions, which span 3-, 10- and 30-year Treasuries. That’s after boosting them the three previous quarters, taking some auction sizes to record levels.
Officials said they don’t anticipate having to increase sales of regular notes and bonds “for at least the next several quarters.” Pressure on the Treasury is expected to ease when the Fed slows its run-off of US government securities holdings — something many dealers see likely to be announced later on Wednesday.
The Treasury also announced the start date for its first debt buyback program in more than two decades.
Against a backdrop of projections for the US budget deficit to stay high for years to come, officials asked the department’s advisory panel – made up of major market participants including BlackRock Inc. and JPMorgan Chase & Co. representatives – to come up with ways to minimize borrowing costs and expand the investor base. US debt managers asked the committee a similar question about five years ago.
That group, the Treasury Borrowing Advisory Committee, suggested the department consider new types of securities, such as callable bonds that can be redeemed ahead of the maturity date, green bonds, and new maturities for floating-rate and inflation-linked bonds.
“We tend to do this periodically to ensure that our issuance suite best meets the market’s need,” Josh Frost, the Treasury’s assistant secretary for financial markets, told reporters Wednesday of the request to TBAC. The questioning “is best viewed through the lens of exploratory-in-nature, without recommendations coming out of it. There may be further work in the future — but at this point it was largely exploratory.”
Borrowing Strains
One sign of the continuing strain on the Treasury came Monday, when it lifted its borrowing estimate for the current quarter. That saw some dealers revamp their expectations for large cuts to issuance of bills, which mature in a year or less, in Wednesday’s plan. Indeed, no such reductions were unveiled.
Treasury Secretary Janet Yellen herself on Tuesday told lawmakers she was concerned “where we’re going” with the deficit, and that “significant steps” would be needed to reduce it in time.
After the Treasury said longer-term debt sales will be steady for some time, “I still see the next move being to larger sizes,” said Stephen Stanley, chief US economist at Santander US Capital Markets LLC.
For now, the Treasury said its previous increases in issuance sizes “leave it well positioned to address potential changes to the fiscal outlook and to the pace and duration of future SOMA redemptions.” SOMA is an acronym referring to the Fed’s securities holdings, including Treasuries.
The Fed is currently allowing up to $60 billion of Treasuries a month run off its balance sheet. Halving that amount, as many economists forecast, would reduce how much the Treasury needs to raise from private investors.
Fed policymakers are set to release their policy statement at 2 p.m. in Washington. Chair Jerome Powell’s subsequent press briefing may offer clues on whether officials still expect to lower interest rates later this year — something that could help the Treasury stem its surging debt-interest bill.
Treasuries showed little reaction Wednesday morning to the refunding announcement, ahead of the Fed.
Wednesday’s Treasury statement also offered long-awaited details on the department’s new buyback plan. These operations will be aimed at supporting market liquidity and improving cash management. Officials spent more than a year analyzing the merits of buybacks and working out the structure for them.
Buyback Plan
The first operation is intended for May 29. Through July, the Treasury plans weekly buybacks of up to $2 billion of nominal coupon securities, and up to $500 million for Treasury inflation-protected securities (TIPS).
The upcoming program bears little resemblance to the buybacks from more than two decades ago. Those were launched during an historic period of budget surpluses, which gave officials the luxury of retiring some outstanding, higher-interest securities.
As for next week’s refunding auctions, the $125 billion will be made up of the following:
$58 billion of 3-year notes on May 7
$42 billion of 10-year notes on May 8
$25 billion of 30-year bonds on May 9
The refunding will raise new cash of about $17.2 billion. New three-year notes are auctioned monthly, and those were already lifted by the Treasury by a total of $4 billion in March and April as part of the January refunding plan.
Turning to bills, which mature in one year or less, the Treasury announced that six-week cash-management bills (CMB) will serve as a new benchmark for this market.
“Investor reception to the 6-week CMB has been strong, and elevation to benchmark status will further support demand,” the Treasury said. The decision was made after considering the outlook for bill supply over the medium term, the department said. By July, the Treasury anticipates short-dated bill auction sizes will head toward the highs seen in February and March.
TIPS, FRNs
Sales of floating-rate debt were also held stable over the coming three months, the Treasury said.
Some TIPS sales will continue to increase, the Treasury said Wednesday, as expected by many dealers, to maintain a stable share of these inflation-linked securities relative to overall debt.
The June reopening auction of five-year TIPS will be raised by $1 billion, as will the July new-issue of the 10-year maturity.
--With assistance from Christopher Condon.
(Adds comment from US Treasury official in seventh paragraph.)
Most Read from Bloomberg Businessweek
AI Is Helping Automate One of the World’s Most Gruesome Jobs
Modi Is $20 Trillion Short on His Grand Plan for India’s Economy
©2024 Bloomberg L.P.
