The US Treasury expanded its plans to release long-term debt in the coming months, primarily based on short-term bills to fund the federal government’s record spending increase to address the Kovid-19 crisis. .
The department said on Wednesday that it would issue $ 112 billion in securities next week to reintroduce the so-called Treasury. In the three months through October, it will issue a nominal coupon-bearing loan of $ 132 billion compared to the previous quarter. With a large increase for long-term securities maturing in seven to 30 years, the department plans to boost the size of the auction across all nominal coupon tenants.
Coupon-bearing notes and bonds include periodic interest payments, while bills do not. The Treasury doubled the supply of the outstanding T-bill earlier this year as it proceeded to finance a record stimulus program approved by Congress. Now, the Treasury is being issued for a long time to help withdraw some of the reduction in average maturity of outstanding federal debt.
The department said in a statement on Wednesday, “Treasury will continue to finance long-term issuance bills in the coming quarters as a possible means to its maturity profile and limit future potential issuance volatility Will continue for. ”
Strategies at JPMorgan Chase & Co. recently calculated that the average maturity of treasury debt had decreased since 2011. Treasury’s Lending Advisory Committee was held in May Noted 30% of treasury debt will mature within a year.
Among the changes announced on Wednesday:
- Auctions of two-year, three-year and five-year notes will increase by $ 2 billion per month through October
- Auction of seven-year note will climb to $ 3 billion per month
- “Both new and recaptured 10-year note auctions have increased in size by $ 6 billion, and $ 4 billion for both new and recaptured 30-year bond auctions starting in August”
- “There has been an increase of $ 5 billion for both new and resumed 20-year bond auction sizes beginning in August”
- Sales of floating rate notes will also be increased
Initial market reaction to the news was weak in the long-term treasury, widening the gap between 2-year and 10-year yields to 43 basis points. The 10-year benchmark yield rose 0.55%.
Priya Mishra, head of global rates strategy at TD Securities, said the increase in supply could put pressure on the Federal Reserve to buy more treasury. The next month may come as soon as possible, after the central bank reviews the policy objectives.
“All eyes are on the Fed,” she said. “We expect them to be announced in September,” Mishra said of a bump in Fed purchases.
With the lack of another fiscal stimulus package, uncertainties remain over the exact money needs in the coming months. On Monday, the Treasury said it expected to raise $ 947 billion in debt over the three months through September and $ 1.216 trillion in net marketable debt in the final three months of 2020.
Related Story: Treasury Estimates Quarterly Borrowings at $ 947 Billion
Those estimates were based on a placeholder calculation of the need for an additional $ 1 trillion from the virus-relief bill under negotiation in Washington. Republicans have proposed that amount in their plan, while Democrats are pushing a more comprehensive $ 3.5 trillion package that the House approved in May.
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(Updates with market feedback and strategist comment.)