MNI: US to Ease T-Bill Issuance, Suggests November Coupon Cuts

The U.S. Treasury said Wednesday in its regular refunding announcement it anticipates gradual reductions in bills as a percent of Treasury debt outstanding and leaving longer-dated issuances steady in the next quarter, while signaling cutting coupon auctions as soon as November.

The department will again issue a record USD126 billion of securities at next week's quarterly refunding, the same as the last two quarters, raising USD67.4 billion in new cash.

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

The Treasury has continued to whittle down its cash stockpile from record highs of USD1.8 trillion last summer, currently just over USD550 billion, to prepare for the debt limit that was re-established in recent days.

"Treasury is not able to currently provide a specific estimate of how long extraordinary measures will last," said Assistant Secretary for Federal Finance Brian Smith, in a statement, citing uncertainty in payments and receipts related to the economic impact of the pandemic.

"AS SOON AS" NOVEMBER

Officials are leaving all nominal coupon and FRN auction sizes steady over the upcoming quarter through October, while addressing unexpected borrowing needs through changes in bill auctions sizes or CMBs. But continuing current issuance sizes and patterns may provide more borrowing capacity than is needed to address borrowing needs over the intermediate-to-long term, a Treasury statement said.

"Treasury will continue to engage with a variety of market participants to better understand the supply and demand dynamics for existing securities, with an expectation of announcing an initial set of auction size reductions as soon as the November refunding announcement."

Treasury plans to further modify its regular cadence of CMBs and anticipates that weekly issuance of the 6-week CMBs will end August 19 and weekly issuance of the 17-week CMBs will continue at least through the end of October, a statement said.

Officials however did announce TIPS auction sizes will again be increased by USD1 billion in the August 30-year reopening compared to last year, the September 10-year reopening compared to May, and in the October 5-year new issue compared to April. "While flexibility will be maintained to adjust TIPS issuance at each refunding quarter, we expect total gross issuance of TIPS to increase by $15 billion to $20 billion in CY 2021," Treasury said.

The department said it has completed its internal review 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 will consider whether an FRN linked to SOFR is "necessary" to meet borrowing needs.

On Monday, Treasury lowered its previous borrowing estimates for the third quarter, saying it will borrow USD673 billion in Q3 and another USD703 billion in Q4, assuming an end-of-December cash balance of USD800 billion. The U.S. borrowed USD319 billion in Q2.