Treasury's Quarterly Refunding Statement Released, $81 Billion In Refunding Auctions On Deck, Second Reopening Of 10 Year TIPS Coming

The Treasury has just released its Quarterly Refunding Statement which indicates that refunding auctions will amount to $81 billion, the same as the amount announced in the November refunding. Furthermore, the auctions sizes are also unchanged from November. The UST noted that after increasing consistently, auctions sizes will finally "stabilize at current levels" and that it is also weighing eventual cuts in coupon auction sizes. With individual tax collections plummeting we wish them all the best as they try to plug the balance with hot air. Notable was the announcement that the UST is considering raising the frequency of its TIPS auctions, as well as a reopening the 10 year TIPS.

From the announcement:

The U.S. Department of the Treasury is offering $81 billion of Treasury securities to refund approximately $48.3 billion of privately held securities maturing on February 15, 2010. This will raise approximately $32.7 billion. The securities are:

  • A 3-year note in the amount of $40 billion, maturing February 15, 2013;
  • A 10-year note in the amount of $25 billion, maturing February 15, 2020; and
  • A 30-year bond in the amount of $16 billion, maturing February 15, 2040.

The 3-year note will be auctioned on a yield basis at 1:00 p.m. EST on Tuesday, February 9, 2010. The 10-year note will be auctioned on a yield basis at 1:00 p.m. EST on Wednesday, February 10, 2010, and the 30-year bond will be auctioned on a yield basis at 1:00 p.m. EST on Thursday, February 11, 2010. All of these auctions will settle on Tuesday, February 16, 2010.


The balance of Treasury financing requirements will be met with 4-, 13-, and 26-week bills; 52-week bills; monthly 2-year, 3-year, 5-year, and 7-year notes; the February 30-year TIPS; the March and April 10-year note reopenings and 30-year bond reopenings; the April 5-year TIPS; and the April 10-year TIPS reopening.

Treasury will also issue cash management bills, some potentially longer dated, during the quarter.

Here are Geithner's perspectives on future borrowing needs, which as we pointed out previously are unduly optimistic in light of the collapse in Treasury receipts.

Financing Needs and Portfolio Considerations

Over the last two years, Treasury has responded to increasing marketable borrowing requirements in a deliberate manner, consistent with our operating framework of being regular and predictable. In addition to increasing issue sizes of coupon securities, several maturity points were added to the auction calendar and the frequency of coupon auctions was increased.

Treasury believes that auction sizes are at levels that give us the ability to adequately address a broad range of potential financing needs, while allowing the average maturity of debt to gradually extend. As such, Treasury anticipates that nominal coupon auction sizes will stabilize at current levels. Going forward, we will continue to monitor projected financing needs and make adjustments, as necessary.

This decision on nominal coupon issuance does not extend to the Treasury Inflation-Indexed Securities (TIPS) program. As indicated at the August and November Quarterly refundings, TIPS issuance will gradually increase going forward.

Is TIPS issuance about to double?

Treasury Inflation-Indexed Securities (TIPS)

TIPS are an important component of Treasury’s debt management strategy. Given financing needs and efforts to improve liquidity in the TIPS program, Treasury is considering increasing the frequency of TIPS auctions. This could include, but is not limited to, the addition of a second reopening to 10-year TIPS offerings. Such an action would result in a total of six 10-year TIPS auctions per year.

This potential change would be implemented in July, with reopening auctions in September and November. Any decision regarding a second reopening of the 10-year TIPS offering will be announced at the May 2010 quarterly refunding.

Treasury will continue to consider other changes to the TIPS calendar in the coming year.

Remember how the pro forma debt ceiling (pre the $1.9 trillion boost passed by Senate but still to be ratified by Congress) was supposed to last thru the end of March? Surprise, surprise: a little extra optimism was present in that expectation as well:

Debt Subject to the Limit

Based on current projections, Treasury expects to reach the debt ceiling as early as the end of February. However, the government’s cash flows are volatile, making it difficult to forecast a precise date.

Treasury is working closely with Congress to pass legislation to increase the debt ceiling. We will keep financial market participants apprised of developments as the debt outstanding approaches the statutory limit.

Full statement here, here is the tentative auction schedule for UST issuance for the next six months, and below is a very useful presentation from the Treasury on quarterly refunding assumptions and actuals.