Auctions of notes and bonds will fall to $67 billion

The U.S. Treasury Department said it will maintain the size of its two-year and three-year note auctions and also keep the amount of longer-term bond issuance unchanged from the previous quarter.

The Treasury will auction $27 billion in three-year notes on Aug. 12, $24 billion in 10-year notes on Aug. 13, and $16 billion in 30-year bonds on Aug. 14, the department said in its quarterly refunding statement released today.

Next week’s auctions of notes and bonds will fall to $67 billion, compared with $69 billion last quarter. The sales will raise $9.3 billion in new cash.

“Based on current fiscal forecasts, coupon auction sizes will remain steady going forward,” the department said in a statement today in Washington. “Treasury will continue to monitor projected financing needs and make appropriate adjustments as necessary.”

Treasury is maintaining its borrowing even as budget deficits are projected to narrow. That’s because the gap is forecast to widen again in later years, Millan Mulraine, deputy head of U.S. research and strategy at TD Securities USA LLC in New York, said before the statement.

“They want to ensure maximum flexibility going forward,” Mulraine said. “They don’t want to cut coupon issuance now only to increase it in the future.”

 

Cash Balances

The Treasury said it will review its cash-balance policy after the Treasury Borrowing Advisory Committee recommended increasing its cash cushion. It is conducting the review after events such as Superstorm Sandy and the Sept. 11 terrorist attacks disrupted debt auctions.

The committee, which represents investment funds and banks, discussed the historically low levels of volatility in financial markets and concluded that “monetary policy and regulatory changes have contributed to the decline.”

“Liquidity providers have declined in number and capacity, making the system less able to deal with unexpected volatility,” according to minutes of the panel’s Aug. 5 meeting.

Separately, a Treasury official told reporters today that dealers offered mixed reactions to the idea of selling securities with maturities of more than 30 years.

 

Test Buybacks

The Treasury also said today it will conduct small-scale buybacks this fiscal quarter to test information-technology systems. It said the buybacks don’t signal any change in policy.

Treasury’s borrowing needs this quarter fell to the lowest level for the period since 2007 as a stronger economy boosts tax revenue.

The U.S. economy grew at a 4 percent annualized rate from April through June. That pace matched the average growth rate from July through December of 2013, which was the strongest six months in a decade.

The 2014 budget deficit is projected at 2.8 percent of gross domestic product by the Congressional Budget Office. It is down from 9.8 percent of GDP in 2009, when President Barack Obama took office.

The $365.9 billion budget shortfall from October through June compared with a $509.8 billion gap in the same period a year earlier, according to the Treasury Department.

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