Treasury Keeps Nominal Coupon Debt Steady at Record $84 Billion

(Bloomberg) — The U.S. Treasury Department will keep its auctions of nominal coupon and floating-rate debt steady at a record this quarter as the gap between spending and revenue continues to widen.

The government will sell $38 billion in three-year notes on Aug. 6, $27 billion of 10-year notes on Aug. 7, and $19 billion of 30-year bonds on Aug. 8, the Treasury said in its quarterly refunding statement in Washington on Wednesday. The $84 billion in planned sales matches the amount sold in each of the last two quarters and will raise new cash of about $26.7 billion.

The government is looking to finance a budget shortfall that was just sped up on its path to hit $1 trillion in coming years as President Donald Trump is set to approve a bipartisan deal to suspend the debt limit until mid-2021 and boost spending. That has Wall Street securities firms predicting that auction sizes will need to be lifted again within about a year’s time. The deficit was $779 billion in fiscal 2018.

The Treasury said it currently anticipates no further changes in issuance sizes for nominal coupon and floating-rate securities for the rest of the calendar year.

The department also detailed changes to sales of Treasury Inflation-Protected Securities, or TIPS, over coming months as it continues plans it originally laid out last year to bolster its use of the securities.

The Treasury said Wednesday that it expects to increase the August TIPS 30-year reopening auction size to $7 billion, raise the September 10-year TIPS reopening auction size to $12 billion, and introduce the new October five-year TIPS at an auction size of $17 billion. The overall increases are consistent with the department’s prior guidance, the Treasury said.

Earlier this week the Treasury said it plans to borrow more than twice as much as previously anticipated in the third quarter, assuming lawmakers free up spending by lifting the debt ceiling.

The department plans to issue $433 billion in net marketable debt from July through September, $274 billion more than it estimated in April, according to a statement released Monday in Washington. The pickup is coming partly as Treasury seeks to bring its cash balance up to about $350 billion, bolstering its cushion which it drew down amid efforts to avoid breaching the debt limit.

Congress Status

The House passed the legislation last week to suspend the debt limit and boost spending, and the Senate is expected to vote on it this week.

Treasury has been using extraordinary accounting measures to stay under the nation’s statutory debt cap after the prior suspension expired in March.

A Treasury official said in a briefing Wednesday that the department doesn’t expect any disruption in money markets as a result of the planned increase in bill sales aimed at reaching the cash-balance goal. The net amount of bill sales at about $160 billion is seen as within the limits of what primary dealers have indicated the markets can handle and is less than what was issued following the previous suspension of the debt limit, according to the official, who spoke on condition of anonymity.

“Once legislation suspending the debt limit is enacted into law, Treasury will begin the process of raising its cash balance back to levels consistent with its prudent cash balance policy, primarily through sizable increases in Treasury bill issuance,” the department said in Wednesday’s statement.

The Treasury didn’t make mention of how the coming halt of the Federal Reserve’s drawdown of its bond holdings will affect debt sales. Fed policy makers conclude a two-day meeting in Washington later Wednesday, where they’re widely anticipated to cut the benchmark interest rate by a quarter point while keeping to the original plan of ending the balance-sheet runoff in September.

The department said it “continues to evaluate the possibility” of issuing a floating-rate security linked to the Secured Overnight Financing Rate, and no decision has been made, according to a statement. The government is interested in adding new securities that would bring in incremental demand for Treasury debt, according to the official at the briefing.