The U.S. Treasury expanded its plans for the issuance of longer-term debt in coming months, after depending mainly on shorter-dated bills to fund the federal government’s record spending surge to address the COVID-19 crisis.
The department on Wednesday said it will issue a record $112 billion of securities at next week’s so-called quarterly refunding of maturing Treasuries. Over the three months through October, it will ramp up “nominal coupon issuance” by a total of $132 billion compared with the previous quarter.
Coupons refer to notes that include interest payments -- unlike bills, which don’t. The Treasury more than doubled the supply of T-bills outstanding earlier this year as it rushed to finance a record stimulus program approved by Congress. It’s also gathered an unprecedented hoard of cash, partly in preparation for loan forgiveness to small businesses under that earlier virus-relief program.
Now, the Treasury is increasing longer-dated issuance to help take back some of the shortening in the average maturity of outstanding federal debt. That’s at a time when long-term borrowing costs have been hitting record lows. The Treasury’s Borrowing Advisory Committee in May had noted that 30% of Treasury debt would mature within a year.
JPMorgan Chase & Co. strategists calculated recently that the average maturity of Treasury debt had declined to its shortest since 2011.
Among the changes announced Wednesday: auctions of two-year, three-year and five-year notes will rise by $2 billion per month over the quarter through October; seven-year note auctions will climb by $3 billion per month; “increases of $6 billion to both the new and reopened 10-year note auction sizes, and increases of $4 billion to both the new and reopened 30-year bond auction sizes starting in August”; “increases of $5 billion to both the new and reopened 20-year bond auction sizes starting in August”; floating rate note sales will also be increased.
“Treasury will continue to shift financing from bills to longer-dated tenors over the coming quarters, using long-term issuance as a prudent means of managing its maturity profile and limiting potential future issuance volatility,” the department said in a statement Wednesday.
With another stimulus package looming, uncertainties remain over the exact funding needs in coming months. On Monday, the Treasury said it expected to raise $947 billion in debt over the three months through September, and another $1.216 trillion in net marketable debt in the final three months of 2020.
Those projections were based on a placeholder calculation of $1 trillion of additional funding needs stemming from the virus-relief bill under negotiation in Washington. Republicans have proposed that amount in their plan, while Democrats are pressing a more comprehensive $3.5 trillion package, which cleared the House in May.
