Treasury Refunding Statement Released: $32/$24/$16 Billion In 3/10/30 Years, $72 Billion Total, Puts Rand Paul On Collision Course With Debt Ceiling
The Treasury has announced $72 billion in coupons to hit the Primary Dealers POMO churn accounts, just as expected. The breakdown is as follows:
- November 8: $32 Billion in 3 Years (link)
- November 9: $24 Billion in 10 Years (link)
- November 10: $16 Billion in 30 Years (link)
Here is Goldman's take, which apparently is surprised by the end of the decline in shorter-term issuance:
1. The specifics of the quarterly refunding package contained one modest surprise—no further reduction in the 3-year note (relative to last month’s auction). In its statement, the Treasury also indicated that they will pause for at least a quarter in what has been a six-month program of reductions in nominal coupon auctions. Specifically, the agency said that “coupon auction sizes are likely to remain steady over the coming quarter,” i.e., until the next refunding announcement in early February. This is consistent with a higher-than-(we) expected borrowing requirement for the first quarter and with the extraordinary uncertainty that hangs over the near-term fiscal outlook as the new Congress determines what to do about scheduled tax cut expirations and other programs (though the Treasury makes no reference to those particular motivations).
2. The Treasury also moved to a monthly program of TIPS auctions along the lines we have long advocated. Beginning in January 2011, the Treasury will auction fresh 5-year notes in April and reopen them twice, in August and December. It will follow a similar schedule for 30-year bonds, with a fresh security in February and reopenings in June and October. These changes complement an every-other-month cycle of two 10-year notes (new ones in January and July, with reopening two and four months thereafter). All TIPS auctions will be held on the Thursday immediately preceding the end-of-month (nominal) coupon auctions.
Now what is interesting is that while the rate of coupon (and bill) issuance will certainly not decline, we now know that even according to the UST, it will in fact accelerate, and hit $700 billion net over the next 5 months. And as we calculated a few days ago, this means that the US Debt ceiling of $14.3 trillion will be breached. Which puts such Tea Partiers as Rand Paul in a sensitive position. In fact, last night as MSNBC highlighted, at the next debt ceiling raise vote, Paul may be able to filibuster the vote (something MSNBC seems to disapprove of, and a vote that had no problems passing last time it was cast in late 2009) which will result in essentially what is a default of the US. Of course, it is much easier to simply do away with the debt ceiling travesty altogether as even the CBO has confirmed that the US will need to raise at least $10 trillion in debt over the next decade. So why continue pretending America no longer live Primary Dealer sticksave auction to auction?