On Wednesday, the United States Treasury announced the first decrease in its quarterly sale of longer-term debt in more than five years, reflecting diminishing borrowing needs as the wave of pandemic-relief spending recedes.
The Treasury Department announced Wednesday that it will auction off $120 billion in long-term securities next week. This is a $6 billion decrease from the record levels seen in the previous three so-called quarterly refundings.
In the coming months, regular auctions of all longer-term securities will be reduced further, with the exception of inflation-linked debt. The most significant reductions will be in seven-year and 20-year Treasuries, which saw higher increases in issuance during the ramping up of debt sales to meet Covid-19 requirements.
“Based on the latest fiscal outlook, current auction sizes are projected to provide excess borrowing capacity over the intermediate-term,” the Treasury said in its statement. After “modest reductions” over the three months through January, “any additional issuance-size changes will be announced quarterly in subsequent refunding statements.”
The Treasury's issuance plans have been based on the assumption that Congress will raise or suspend the federal debt limit. Last month, lawmakers raised the ceiling by a small amount, with the Treasury's borrowing authority set to expire as soon as next month.
The announcements on Wednesday were in line with Wall Street bond dealers' expectations. They predicted that the Treasury would reduce auctions of regular coupon-bearing debt (which pays interest) starting this month. They did differ on the size of the cuts for securities with maturities of ten years or more.
The Treasury also stated that it will do the following in the coming months:
Reduce monthly sales of 2-, 3-, and 5-year notes by $2 billion over the next three months.
Over the next three months, reduce 7-year notes by $3 billion per month.
Reduce the size of new and reopened 20-year bond auctions by $4 billion beginning in November.
Reduce the size of new and reopened 10-year note auctions by $2 billion beginning in November.
Reduce the size of new and reopened 30-year bond auctions by $2 billion beginning in November.
Reduce the reopening sizes of floating rate note sales by $2 billion in November and December, with the same reduction for the next new-issue two-year FRN in January.