Treasury Announces Increase To Debt Sales, Launches 2-Month Bill

Earlier this week, the Treasury surprised the market and sent bond yields higher, when it unexpectedly reported that in the current quarter, US funding needs would increase by $56 billion to a $329 billion, and in the second half of the year will be the most since the financial crisis a decade ago, with the Treasury expecting to issue $769 billion in net marketable debt in the second half, the most since the financial crisis.

But how would the US Treasury adjust its debt auction pattern to fund this growing debt requirement?

We got the answer this morning, when in the quarterly refunding announcement, the Treasury announced it would raise the amount of long-term debt it sells to $78 billion this quarter, up from $73 billion last quarter, while launching a new two-month bill. The department is also extending out to the five-year maturity where it’s concentrating its increases to coupon-bearing debt.

The Treasury announced increases to nominal coupon auction sizes and FRNs over the upcoming quarter as follows: 

  • Over the next three months, Treasury anticipates increasing the sizes of the 2-, 3-, and 5-year note auctions by $1 billion per month.  As a result, the size of 2-, 3-, and 5-year note auctions will increase by $3 billion, respectively, by the end of October. 
  • In addition, Treasury will increase the auction size of the next 2-year FRN auction by $1 billion in August.
  • Finally, Treasury will increase auction sizes by $1 billion to each of the next 7- and 10-year notes and the 30-year bond auctions in August, and hold the auction sizes steady at that level through October.

Here the surprise is that whereas consensus had expected 5-year auctions to increase by $1 billion in the quarter, the Treasury will now increase the auction amount by $1bn every month in the quarter, for a total of $3BN, which in turn will put extra pressure on the belly.

Below is a summary of the auction calendar for the third quarter:

Specifically, the Treasury will sell $34 billion in three-year notes on Aug. 7, compared with $33 billion it sold last month and $31 billion in May. The 10-year note auction will be increased to 26 billion on Aug. 8, from $25 billion last quarter, and sell $18 billion in 30-year bonds on Aug. 9, up from $17 billion in May. The sales will raise new cash of $39.8 billion, according to Bloomberg.

The Treasury again left unchanged the size of TIPS auctions, and said it is studying whether to introduce a second new five-year TIPS to its auction calendar.

Furthermore, having previously disclosed plans to sell 2-Month Bills, today the Treasury unveiled plans to begin selling 2-month bills on October 15, and will settle on Tuesdays unlike the traditional bill settlement day of Thursday.  In order to enhance the liquidity of the new 2-month tenor, Treasury is also announcing changes to the 1-month bill auction cycle beginning in November. After a period of transition, 1-month bill will be a reopening of the 2-month and will also settle on Tuesdays. The TBAC also recommended new bill issuance be kept at “a quarter to a third of new issuance over the intermediate term."

Given seasonal patterns, “bill supply is anticipated to gradually increase,” Treasury said. “This increased bill supply will include the launch of the new benchmark 2-month bill in October.” Treasury said it will meet any unexpected change in financing needs with increased bill sales.

Several other recommendations from the TBAC:

  • Treasury should consider increasing TIPS issuance gradually over intermediate term so that they remain at about 7% of outstanding debt on average over time
  • Noted that Treasury should “remain flexible given the substantial uncertainties in the outlook for financing needs over the next few years”
  • Regarding 2-month bills, Treasury official briefing the TBAC emphasized the theme of auction sizes needing to be large enough to support market liquidity; committee agreed the 2-month bill should be “well received”
  • On TIPS, the committee said further study and outreach by the Treasury is warranted

TBAC also discussed commercial bank demand for high quality liquid assets (HQLA) and the role Treasuries are likely to play in portfolios in the context of the Fed’s balance sheet normalization.

Comments

847328_3527 LawsofPhysics Wed, 08/01/2018 - 09:01 Permalink

Interest on the debt is getting better...if you hold treasuries. Hopefully, savings rates also increase so Americans are encouraged to start saving again. Plus, Trump is using a larger portion to repair/build infrastructure. That's the stuff the kenyan promised to fix but lied.

In the long run, a correction to the mean is a 'good thing.'

Too bad the PMs do not reflect the problems with this massive amount of deficit /debt.

In reply to by LawsofPhysics

james diamond squid BaBaBouy Wed, 08/01/2018 - 10:25 Permalink

no moar rolling the debt into near zero short dated maturities.  21 trillion x 2.5% approx average interest rate = approx 500 billion per year in debt service; COMPOUNDING and growing.

kick the can, kick the fucking can.  shows how stoopid the human race is and narcissistic (instant gratification).  worse yet: the debt and debt servitude isn't front page red alert news every day and the number 1 priority to eliminate. all those peace lovers, just keep adding to the debt and see where it leads you  (war).  what a defective species (humans).

 

In reply to by BaBaBouy

withglee 847328_3527 Wed, 08/01/2018 - 09:34 Permalink

Interest on the debt is getting better...if you hold treasuries. Hopefully, savings rates also increase so Americans are encouraged to start saving again. Plus, Trump is using a larger portion to repair/build infrastructure. That's the stuff the kenyan promised to fix but lied.

In a "real" money process, "interest collected" is perpetually equal to "defaults experienced", money being "an in-process promise to complete a trade over time and space" and always, and only, created by traders (like you and me making time spanning purchases like houses and cars).

That said, we have a "semi-real" process. First, there is fictional (i.e. no real) coupling between interest and defaults. Second, there is fictional (i.e. no real) coupling between money-created-and-destroyed and traders-promises-spanning-time-and-space. Third, there is a huge component of counterfeiting (creation with no intention of paying back ... i.e. all government spending).

So any opinion you have about "our" money has to be predicated on absolute nonsense! You can never be right because the game is changing dynamically on whim.

In reply to by 847328_3527

LawsofPhysics new game Wed, 08/01/2018 - 09:07 Permalink

Go talk to Japan.

"Debt does not matter" - Ben Bernanke

"once unemployment goes below 6.5% we will normalize interest rates" - Ben Bernanke

Certainly Ben would not lie to congress, but if he did then he needs to be executed publicly.  You want people to be act responsibly?  Start holding them accountable, start at the TOP!

In reply to by new game

LawsofPhysics Wed, 08/01/2018 - 08:58 Permalink

"Treasury should consider increasing TIPS issuance gradually over intermediate term so that they remain at about 7% of outstanding debt on average over time"

LMFAO!!!!   WHAT GOOD WILL THAT DO WHEN THE "OFFICIAL" INFLATION NUMBERS ARE TOTAL BULLSHIT?!?!?!?!?

 

silverer boostedhorse Wed, 08/01/2018 - 09:11 Permalink

This should become interesting as the value of the dollar continues to sink as it loses it hold on the petro industry. And that's happening pretty quickly. Anything bought from overseas, such as oil, metal, basic anything and finished goods as well will cost more as the dollar's reserve status becomes progressively weaker. That means more borrowing to sustain the present game. More borrowing means paying more interest. And as the debt instruments appear or become more risky, the interest offered will have to be higher to move the bonds. Not sustainable, to say the least. Enjoy each day folks, because it's hard to predict where this thing will land.

In reply to by boostedhorse

KarlGDenninger Wed, 08/01/2018 - 09:03 Permalink

Debt doesn't matter. They will crash the market and send everybody into treasuries. They can play this game another 100 years.

 

Besides Debt is based on assets. We could sell an Island like Hawaii and wipe 4 trillion off easily. We have tons of assets. We are not even close to being over our heads. Keep calm and buy

GunnerySgtHartman KarlGDenninger Wed, 08/01/2018 - 09:06 Permalink

Besides Debt is based on assets. We could sell an Island like Hawaii and wipe 4 trillion off easily.

I've long advocated breaking California off at the San Andreas Fault and selling everything west of the Fault to the Chinese as a means of wiping out our debt (among other things).  The only requirement would be that they tow it across the Pacific so we can be rid of it.

In reply to by KarlGDenninger