Treasury Lifts Quarterly Debt Sales to Record $122 Billion

The U.S. Treasury further expanded sales of longer-term debt in its issuance plan for coming months as it anticipates more fiscal stimulus to shore up the economic recovery.

While the outcome of the U.S. election remains in limbo and the prospects for legislating additional stimulus spending remain uncertain, the Treasury Department on Wednesday said it will issue $122 billion of notes and bonds at next week’s so-called quarterly refunding auctions -- the third straight quarterly record.

The Treasury also detailed plans over the coming months to boost sales of 20-year bonds along with coupon-bearing debt across maturities from two-year through seven-year notes. For the first time since 2019, the government will increase sales of its inflation-linked securities, starting in 2021, and it plans an expansion of floating-rate notes.

Together, the changes in nominal coupon and floating-rate auction sizes “will result in an additional $105 billion of issuance to private investors during the November-January quarter compared to the August-October quarter,” the Treasury said.

Compared with August, the Treasury leaned less heavily this time on the longest-dated securities as it added to its issuance. The 10- and 30-year tenors rose by less, while the three-year issue climbed by the same amount.

Treasury Plans Record $122b Refunding, Leans Less on Long Debt

“Treasury is trying to tread lightly with a pendulum swing toward the long-end, after they had done some dramatic shifts,” said Russ Certo, managing director of rates at Brean Capital. “It’s also probably easier for them to hit the intermediate maturities at this stage. And they don’t want the discussions being that there is massive amounts of Treasury financing in the long end.”

The Treasury also said it will continue to consider issuing debt linked to the Secured Overnight Financing Rate (SOFR), something that’s been under analysis for several months. SOFR is the presumptive heir to Libor as a benchmark for short-term dollar lending rates.

The Treasury will sell $54 billion in three-year notes on Nov. 9, compared with $52 billion sold last month and $48 billion in August. The government increased to $41 billion the sale of 10-year notes to be auctioned on Nov. 10, from $38 billion last quarter, while hiking the 30-year bonds to be sold on Nov. 12 to $27 billion from $26 billion in August. The sales will raise new cash of $61.1 billion, Treasury said.

The Treasury also said it will increase by $2 billion both the new-issue and reopening sales of 20-year bonds beginning this month. Its current offering of floating-rate debt securities was bumped up as well.

Treasury Lifts Quarterly Debt Sales to Record $122 Billion

Treasury yields across the curve remained lower after the announcement Wednesday. Long-end Treasuries did outperform slightly, given the reduced emphasis on expanding issuance beyond seven-year notes.

The 10-year yield was about 0.77% as of 9:30 a.m., down from 0.90% Tuesday. Government debt yields had plunged in overnight and in early trading, given a flight to safety amid a lack of a clear winner in the U.S. presidential election.

Wednesday’s announcement comes after the Treasury on Monday said it was penciling in an estimate of $1 trillion of fiscal stimulus in coming months, while noting there is “significant uncertainty” regarding future Covid-19 related legislation. Stimulus talks have been at an impasse for months.

While the debt management team slashed its borrowing estimate for the final quarter of the year to $617 billion, it anticipated borrowing $1.127 trillion in the first quarter, retaining an expectation of eventual action on stimulus.

Several coronavirus-related spending measures put in place earlier this year saw the U.S. budget deficit more than triple, to a record $3.1 trillion in the fiscal year through September.

Going into Wednesday’s announcement, Wall Street was divided over how much U.S. debt the Treasury was expected to sell over the coming three months. The differences reflected a split over the best approach toward handling political uncertainty over the outlook for spending as the presidential and congressional elections had loomed.

©2020 Bloomberg L.P.

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