MNI POLICY: US Shifts Bond Refunding Out The Curve

The U.S. Treasury on Wednesday further expanded planned longer-term debt sales, after earlier in the year depending on shorter-dated bills to fund record spending to fight the coronavirus.

The department said it will issue a record USD122 billion of securities at next week's quarterly refunding of maturing Treasuries, raising USD61 billion in new cash. Over the three months through January, it will ramp up "nominal coupon issuance" by a total of USD105 billion.

"Treasury continues to shift financing from bills to longer-dated tenors, using long-term issuance as a prudent means of managing the debt maturity profile and limiting potential future issuance volatility. As such, Treasury intends to increase auction sizes of nominal coupons, FRNs, and TIPS this quarter," the department said in a statement.

The anticipated changes in Treasury auction sizes are presented in the table below in USD billion:

Among the announced changes: auctions of 2-year, 3-year and 5-year notes will rise by USD2 billion per month over the quarter through January; seven-year note auctions will climb USD3 billion per month; increases of USD3 billion to both the new and reopened 10-year note auctions, and increases of USD1 billion both the new and reopened 30-year bond auction sizes starting in November.

No decision has been made regarding potential issuance of an FRN linked to SOFR, but the department says it "continues to actively explore the possibility." Members of the Treasury Borrowing Advisory Committee had hoped that Treasury would make a decision to announce a SOFR FRN.

Treasury also announced that it intends to gradually increase TIPS issuance next year. The January 10-year auction will be boosted by USD1 billion, and the rest of the schedule for next year will be announced in later quarters. Treasury intends for TIPS issuance to increase by USD10 billion to USD20 billion for all of 2021.

On Monday, the Treasury said it expected to raise USD617 billion in debt over the three months through December, and another USD1.127 trillion in net marketable debt in the first three months of 2021. Those two quarters would still be far below the all-time record of USD2.75 trillion borrowed in the single April-June quarter.

Projections were based on a placeholder calculation of USD1 trillion of additional funding needs stemming from another stimulus under negotiation in Washington. Those negotiations have yet to be completed, reflecting a sharp divide between Democrats and Republicans over how large the next relief bill should be. It is unclear whether legislation may still be passed before year-end or whether more support will now wait until a new Congress is installed in January.

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 in preparation of another fiscal package.