BY TYLER DURDEN
WEDNESDAY, AUG 02, 2023 – 09:44 AM
We gave a big picture preview of the debt flood (and fiscal crisis) that is coming to the US this past Monday when, looking at the latest Treasury debt estimates, we showed that the US predicted a near-record $1 trillion in debt sales in the current quarter (up from $$733BN forecast previously) and $852 billion in Oct-Dec quarter, numbers so staggering they are usually associated with economic crises…
… but in this case a surge in debt issuance meant to sustain the illusion of the deficit-busting Bidenomics, which has managed to keep the US economy from imploding only thanks to massive new debt and deficit spending, or what BofA’s Michael Hartnett called “The Era Of Fiscal Excess”, something which Fitch finally realized last on Tuesday when it became only the second rating agency in history to downgrade the US AAA rating.
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… this morning we got a more granular preview of how we get there, when the Treasury published its quarter refunding statement, in which the US boosted the size of its quarterly sale of longer-term debt for the first time in over 2 1/2 years, testing buyers’ appetites amid an increase in government borrowing needs so alarming it helped spur Fitch Ratings to cut the US sovereign rating from AAA (and judging by the surge in yields this morning, the appetite may be lacking).
The Treasury said it will sell $103 billion of longer-term securities at its so-called quarterly refunding auctions next week, which span 3-, 10- and 30-year Treasuries, and will refund approximately $84 billion of maturing Treasury notes and bonds, raising about $19 billion in new cash. That’s a big jump from a $96 billion in gross issuance last quarter, and larger than most dealers had expected.
Specifically, for next week’s refunding auctions, they break down as follows:
- $42 billion of 3-year notes on Aug. 8, up from $40 billion at the May refunding and at the last auction in July
- $38 billion of 10-year notes on Aug. 9, compared with $35 billion last quarter
- $23 billion of 30-year bonds on Aug. 10, versus $21 billion in May
Issuance plans for TIPS, were held steady except for the 5-year maturity, where October’s new-issue auction will go up by $1 billion. Floating-rate note auction sizes were increased by $2 billion.
The table below presents, in billions of dollars, the actual auction sizes for the May to July 2023 quarter and the anticipated auction sizes for the August to October 2023 quarter:
“Over the next three months, Treasury anticipates incrementally increasing auction sizes across benchmark tenors” the TSY said in a statement, adding that it “plans to increase auctions sizes by slightly larger amounts in certain tenors in order to maintain the structural balance of supply and demand across tenors. Treasury will evaluate whether similar relative adjustments are appropriate when determining auction size changes in future quarters.”
Treasury plans to increase the auction sizes of the 2- and 5-year by $3 billion per month, the 3-year by $2 billion per month, and the 7-year by $1 billion per month. As a result, the auction sizes of the 2-, 3-, 5-, and 7-year will increase by $9 billion, $6 billion, $9 billion, and $3 billion, respectively, by the end of October 2023.
Treasury plans to increase both the new issue and the reopening auction size of the 10-year note by $3 billion, the 30-year bond by $2 billion, and the $20-year bond by $1 billion.
Treasury plans to increase the August and September reopening auction size of the 2-year FRN by $2 billion and the October new issue auction size by $2 billion.
The bigger than expected jump in issuance showcases the rising borrowing needs that contributed to Tuesday’s decision by Fitch Ratings to lower the sovereign US credit rating by one level, to AA+. Fitch said it expects US finances to deteriorate over the next three years, and that’s using old and outdated assumptions: the current reality is much worse.
Ahead of the announcement, dealers had laid out expectations for stepped-up issuance of other securities, and for the boosts in sales to stretch into 2024, which the Treasury confirmed on Wednesday.
“While these changes will make substantial progress towards aligning auction sizes with intermediate- to long-term borrowing needs, further gradual increases will likely be necessary in future quarters” the department said in a statement.
Since the suspension of the debt limit in early June, Treasury has increased bill issuance to continue to finance the government and to gradually rebuild the cash balance over time to a level more consistent with its cash balance policy. As previously noted, Treasury anticipates that the cash balance will approach levels consistent with its policy by the end of September. Accordingly, Treasury anticipates further moderate increases in Treasury bill auction sizes in the coming days. Treasury also intends to continue issuing the regular weekly 6-week CMB, at least through the end of this calendar year.
Please read more at the below link:
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