MNI: Text - Treasury Quarterly Refunding Statement

     The U.S. Treasury Department released the following statement Wednesday: 

     The U.S. Department of the Treasury is offering $96 billion of Treasury

securities to refund approximately $57 billion of privately-held Treasury notes

and bonds maturing on May 15, 2020. This issuance will raise new cash of

approximately $39 billion. The securities are:

     - A 3-year note in the amount of $42 billion, maturing May 15, 2023; 

     - A 10-year note in the amount of $32 billion, maturing May 15, 2030; and 

     - A 30-year bond in the amount of $22 billion, maturing May 15, 2050.

     The 3-year note will be auctioned on a yield basis at 1:00 p.m. EDT on

Monday, May 11, 2020. The 10-year note will be auctioned on a yield basis at

1:00 p.m. EDT on Tuesday, May 12, 2020. The 30-year bond will be auctioned on a

yield basis at 1:00 p.m. EDT on Wednesday, May 13, 2020. All of these auctions

will settle on Friday, May 15, 2020. 

     The balance of Treasury financing requirements over the quarter will be met

with the weekly bill auctions, cash management bills (CMBs), and the monthly

note, bond, Treasury Inflation- Protected Securities (TIPS) auctions, and 2-year

Floating Rate Note (FRN) auctions.

     Projected Financing Needs 

     Treasury's borrowing needs have increased substantially as a result of the

federal government's response to the COVID-19 outbreak. Since the end of March,

Treasury has raised an unprecedented $1.464 trillion on net and the Treasury

cash balance has reached historically high levels. Over the next quarter,

Treasury's cash balance will likely remain elevated as Treasury seeks to

maintain prudent liquidity in light of the size and relative uncertainty of

COVID-19- related outflows.

     While the initial increases in financing related to the COVID-19 outbreak

response were focused on Treasury bills, Treasury expects to begin to shift

financing from bills to longer-dated tenors over the coming quarters. In light

of the substantial increase in borrowing needs, Treasury plans to increase its

long-term issuance as a prudent means of managing its maturity profile and

limiting potential future issuance volatility.

     Financing Needs For The Upcoming Quarter 

     Based on current fiscal forecasts, Treasury intends to increase auction

sizes across all nominal coupon tenors over the May-to-July quarter. The

increase in coupon issuance will be larger in longer tenors (7-year, 10-year,

20-year, and 30-year). Treasury also intends to modestly increase auction sizes

for floating-rate notes (FRNs). Meanwhile, auction sizes for TIPS will remain

unchanged. 

     Treasury plans to address any seasonal or unexpected variations in

borrowing needs over the next quarter through changes in regular bill auction

sizes and/or CMBs.

     Nominal Coupon and FRN Financing 

     Over the next three months, Treasury anticipates increasing the sizes of

the 2-, 3-, and 5-year note auctions by $2 billion per month. As a result, the

size of 2-, 3-, and 5-year note auctions will each increase by $6 billion by the

end of July. 

     Treasury also anticipates increases in the auction sizes of 7-year notes of

$3 billion per month over the next 3 months. The size of the 7- year note

auction will increase by $9 billion by the end of July. Treasury is also

announcing increases of $5 billion to both the new and reopened 10-year note

auction sizes, and increases of $3 billion to both the new and reopened 30-year

bond auction sizes starting in May. 

     In addition, following the $2 billion increase in the April new-issue FRN

auction size, the May and June FRN reopening sizes will be increased by $2

billion (resulting in a $20 billion auction size for each). Treasury anticipates

that it will increase the size of the next new-issue 2-year FRN auction in July

by $2 billion to $24 billion.

     Introduction of a 20-Year Nominal Coupon Bond 

     Treasury anticipates that the initial offering size of the 20-year bond

will be $20 billion and that the auction will take place on Wednesday, May 20,

2020, at 1:00 p.m. EDT. As outlined in the previous refunding statement, the

security will have a dated date of May 15, 2020, and the maturity date will be

May 15, 2040. The security will settle on Monday, June 1, 2020, because May 31,

2020, is a Sunday.

     Treasury anticipates reopening the 20-year bond in both June and July in

amounts of $17 billion for each auction. This security will raise an additional

$54 billion in new cash over the quarter. Additional details for the auction of

the 20-year bond offering will be announced on Thursday, May 14, 2020 at 11:00

a.m. EDT. 

     The changes in coupon and FRN auction sizes announced today will result in

an additional $154 billion of issuance to private investors during the May-July

quarter compared to the February- April quarter.

     Bill Financing 

     Over the upcoming quarter, Treasury will continue to supplement its regular

benchmark bill financing with a regular cadence of CMBs. Treasury anticipates

that weekly issuance of 6- and 17-week CMBs for Thursday settlement and maturity

as well as 15- and 22-week CMBs for Tuesday settlement and maturity will

continue at least through the end of July. It is anticipated that these CMBs

will be announced as part of the regular Tuesday and Thursday bill announcement

cycle.

     TIPS Financing 

     Over the next refunding quarter, Treasury expects to maintain TIPS issuance

sizes at $12 billion for the May 10-year TIPS reopening, $15 billion for the

June 5-year TIPS reopening, and $14 billion for the July 10-year TIPS. Treasury

will continue to closely monitor TIPS market conditions and assess supply and

demand dynamics when considering how best to meet future financing needs. 

     As always, Treasury will continue to evaluate the fiscal outlook and assess

the need for additional increases to auction sizes at subsequent quarterly

refundings. 

     Treasury Plans to Issue a Request for Information (RFI) on SOFR-Indexed

FRNs

     Treasury continues to explore the possibility of issuing a floating rate

note indexed to the Secured Overnight Financing Rate (SOFR). As noted in the

February 2020 quarterly refunding announcement, Treasury plans to issue an RFI

to further our understanding of potential demand for such a security and how it

might fit into Treasury's goal of financing the government at the least cost

over time. Treasury expects to release the RFI in May 2020 and encourages market

participants and the public to respond.

     Small-Value Contingency Auction Operation Test 

     Treasury believes that it is prudent to regularly test its contingency

auction infrastructure. Treasury's contingency auction system has been used

routinely over the last several years to conduct both mock auctions and live

small-value test auctions. Sometime over the next three months, Treasury intends

to conduct a small-value test auction using its contingency auction system.

Details about this test will be announced at a later date. 

     This small-value test auction should not be viewed by market participants

as a precursor or signal of any pending policy changes regarding Treasury's

existing auction processes. 

     Please send comments or suggestions on these subjects or others related to

debt management to debt.management@treasury.gov. 

     The next quarterly refunding announcement will take place on Wednesday,

August 5, 2020.

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

[TOPICS: M$U$$$,MFU$$$,MGU$$$]