MNI: US to Cut T-Bills on Debt Limit, Coupons Steady

The U.S. Treasury said Wednesday it anticipates cutting T-bill auctions by USD150 billion in the months ahead and leaving longer-dated issuances steady, relying on its cash pile to fund the Biden administration's fiscal policies, as officials contend with uncertain debt limit deadlines to come at the end of July.

The department will issue a record USD126 billion of securities at next week's quarterly refunding, the same as last quarter, and raising USD47.7 billion in new cash.

Officials say they plan to sell USD58 billion in 3-year notes on May 11, USD41 billion in 10-year notes on May 12, and USD27 billion in 30-year bonds on May 13.

The Treasury has continued to whittle down its cash stockpile from record highs of USD1.8 trillion last summer, currently just over USD900 billion. But the Treasury surprised markets Monday when it announced it would not draw down the balance to USD133 billion by July to meet the debt ceiling, but instead assumed a balance of USD450 billion, saying Wednesday it "expects that Congress will raise or suspend the debt limit in a timely manner."

"Treasury is evaluating a range of potential scenarios, including some in which extraordinary measures could be exhausted much more quickly than in prior debt limit episodes," said Assistant Secretary for Federal Finance Brian Smith, in a statement.

'MODEST' T-BILL CUTS

The department said it currently estimates that the reduction in bills outstanding between now and July 31 could be a "modest" USD150 billion, which is approximately one-third the size of the decline in bill supply that has already occurred since the February refunding.

Officials are leaving all nominal coupon auction sizes steady over the upcoming quarter through July, and plans to address any unforeseen borrowing needs over the next quarter "through changes in regular bill auction sizes and/or CMBs."

TIPS auction sizes will be increased by USD1 billion in the May 10-year reopening and the June 5-year reopening compared to their respective issuance sizes last year, and the July 10-year new issue compared to the January new issue.

On Monday, Treasury quadrupled previous borrowing estimates, saying it will borrow USD463 billion in Q2 and another USD USD821 billion in Q3, assuming an end-of-September cash balance of USD750 billion. The U.S. borrowed USD401 billion in Q1.

The department held off on making a decision on debt linked to the Secured Overnight Financing Rate, the heir presumptive to Libor as a benchmark for short-term dollar lending rates. The government has been analyzing the idea for months, and said Wednesday it "continues to explore the possibility" of SOFR-linked issuance.