The U.S. Treasury Department will hold auction sizes for its longer-term debt steady for at least the next several quarters, sticking to a strategy of relying on short-term bills to manage the government’s growing borrowing needs.
"We anticipate no changes to nominal coupon and FRN auction sizes for at least the next several quarters," the Treasury said in its quarterly refunding statement released Wednesday in Washington. The department announced it would sell $125 billion in notes and bonds next week to raise approximately $41.6 billion in new cash.
The upcoming sales will include $58 billion in three-year notes on May 11, $42 billion in 10-year notes on May 12, and $25 billion in 30-year bonds on May 13. The decision extends a policy that has increased the share of short-term bills in the nation's debt mix, a tactic the International Monetary Fund warned last month could expose the U.S. to greater risks from sudden interest rate spikes.
The strategy provides near-term stability by capping the supply of long-term debt but leaves the government’s financing costs more vulnerable to volatile market sentiment. The Treasury Borrowing Advisory Committee (TBAC), a panel of investors and dealers, noted in a separate statement that expanding the sales of interest-bearing securities may be necessary in the fiscal year that begins in October.
The Treasury's reliance on short-term funding has been supported by strong demand, including from the Federal Reserve. The central bank has been reinvesting proceeds from its maturing mortgage-backed securities portfolio into Treasury bills, creating a significant, steady source of demand.
However, the TBAC report signals that the current approach may not be sustainable as the U.S. fiscal deficit continues to expand. The committee said it had "discussed potential changes to forward guidance that Treasury might consider," suggesting that the market is being prepared for an eventual increase in the supply of longer-dated government bonds.
For the current quarter, the Treasury raised its net borrowing estimate on Monday to $189 billion, citing lower-than-expected net cash inflows. The department also projected its cash balance could reach a peak of $1 trillion by the end of July.
This article is for informational purposes only and does not constitute investment advice.
