Trending Of US Sovereign Issuance In 2009
Zero Hedge recently wrote about the dramatic transformation in the supply/demand landscape in US fixed income issuance, where courtesy of the Federal Reserve, marginal buyers needed to fill a demand hole of just over $200 billion. This number skyrockets elevenfold in the coming 12 months, all else being equal. And already the US Government is lining up the very first offering for 2010: in the first half of January we will likely see the following being offered, likely in increments of tens of billions:
- 28-Day Bills - January 7
- 91-Day Bills - January 14
- 182-Day Bills - January 14
- 364-Day Bills - January 14
- 3-Year Notes - January 15
- 10-Year Notes - January 15
- 30-Year Notes - January 15
While full supply details will be announced on January 7, we would venture to guess at least $120 billion in coupons and about $100 billion in Bills. Even when taking refunding into consideration, this will likely be a short-dated heavy auction. And as readers are all too aware, the biggest risk for government funding now is two-fold: roll risk, and duration extension. Alas, with just three coupons it seems that the government will continue delaying the dangerous game of pushing out maturities for the foreseeable future. Yet can we read into patterns from 2009 to determine what the issuance of various durations will look like in 2010? Yes, courtesy of the Daily Treasury Statement which breaks down the detail of new issues and refunds daily for all past periods.
The first chart below demonstrates what gross and net Bill issuance looked like in 2009. What becomes obvious is that the government has indeed been focused on reducing the net offering size as the year progressed. In fact, trendlining net Bill issuance indicates that while in the beginning of the year the UST was very focused on large scale Bill issuance, toward the end of the year redemptions were the primary mover of the Supply/Demand curve.
Altogether, the Treasury was a net purchaser of Bills in 2009, with $6.33 trillion in Bills issued and $6.39 trillion redeemed: a net redemption of $62 billion. What is notable is that as Bill yields, especially in the 28-Day category dropped to near zero levels, issuance declined as well: there was "just" $437 billion issued in December, compared to a full year average of $528 billion monthly. The data is too noisy to derive any seasonality components from it.
Yet any prudence in the Bill ballpark was quickly offset by the Treasury's actions in Notes (and Bonds). The chart below demonstrates the ramp in coupon issuance as the year progressed.
In 2009 the government issued $1.92 trillion in Notes while redeeming $605 billion, for a net annual issuance of $1.3 trillion. The chart indicates that the three busiest months for the Treasury were November, June and March, when $313 billion, $266 billion and $254 billion, respectively, were issued ($221 billion, $206 billion, and $193 billion net of redemptions). If this patterns will repeat we should expect a substantial ramp up in Note issuance in 2010. In January 2009 only $64 billion in Notes and Bonds was issued: we believe we will likely double this total with the very first 2010 auction alone. In 2009, the average monthly Note issuance was $160 billion gross and $110 billion net: another set of numbers which will easily be surpassed in the coming year.
Finally, the combination of Bills, Notes and Bonds net monthly issuance can be seen on the chart below: 2009 was truly a busy year for Tim Geithner. All in all $1.26 trillion of net new govvies found buyers. Of this, a sizable amount was acquired by the Federal Reserve and Primary Dealers.
On average $115 billion in net Treasuries was issued each month.
And how did the traditional foreign purchasers do in 2009? The Treasury International Capital database provides good data for the key holders of US debt. In October 2009, foreign holders of US Treasury securities amounted to $3.498 trillion. This compares to $3.076 trillion in December 2008. The biggest holders of USTs are the usual suspects: China ($798.9 billion), Japan ($746.5 billion) and the UK ($230.7 billion).
How willing will these foreign "partners" be to continue financing the US deficit spending is something we will all find out quite soon, especially with the Fed phasing out of the demand-side of the equation quite soon.