US Treasury to sell US$64 billion in notes, bonds next week

[WASHINGTON] The US will auction US$64 billion in notes and bonds next week, US$2 billion less than a quarter ago and the lowest since 2008, as a stronger economy helps narrow the nation's budget deficit, the Treasury Department said.

The government will sell US$24 billion in three-year notes on Feb 10, US$24 billion in 10-year notes on Feb 11 and US$16 billion in 30-year bonds on Feb 12, the department said in its quarterly refunding statement in Washington on Wednesday.

The sales will result in a debt paydown of US$16.6 billion. Going forward, two- and three-year note auctions will be held steady, it said after coupon auction sizes were trimmed last quarter.

Bond-market advisers to the Treasury recommended at a meeting yesterday that the government maintain current issuance levels of coupon, floating-rate notes and inflation-protected securities "in anticipation of increased funding needs" in the fiscal year starting Oct 1.

"We've got a moment in time where things are looking good, but we know full well, or we anticipate, that it's just a moment in time," said David Ader, head of government bond strategy at CRT Capital Group LLC in Stamford, Connecticut.

The Treasury has been reducing its borrowing as budget gaps narrow as a share of the economy. The shortfall shrank to its lowest level in seven years in 2014, and the Congressional Budget Office projects it will keep narrowing this year.

Complicating the debt-management outlook is possible political wrangling over the debt ceiling after its suspension ends in mid-March. That will require the Treasury to use so- called extraordinary measures to avoid going over the limit until Congress raises it.

The department today said it will give clarity at a later date on how long it can go after March 15 before the limit is breached.

"Extraordinary measures will allow the government to continue to meet its obligations for a period of time after March 15," Seth Carpenter, acting assistant secretary for financial markets, said in a statement today.

"That said, it is impossible to provide a precise forecast as to how long the extraordinary measures will last."

The Treasury's total borrowing needs this quarter will be the lowest for the period since 2007. It plans to issue US$155 billion in net marketable debt in the first three months of this year, about US$54 billion less than projected three months ago, according to a Treasury statement earlier this week.

The department plans to pay down US$7 billion in debt during the April-June period, as the tax-filing deadline leads to a surge in revenue.

The US deficit for the fiscal year ended Sept 30 totalled 2.8 per cent of gross domestic product, down from 9.8 per cent in 2009. The deficit will narrow to 2.6 per cent of GDP this year and 2.5 per cent in 2016 and 2017, according to CBO estimates from January.

A stronger economy is boosting revenue at the Treasury as corporate profits increase and job growth turns recipients of unemployment benefits into taxpayers.

US output expanded at a 2.6 per cent annual rate in the final quarter of 2014 after a 5 per cent rate in the July- September period, according to Commerce Department figures. Job gains were the strongest since 1999 in 2014, driving unemployment down to its lowest level since 2008.

"After a disastrous period in the depths of the financial crisis, the federal budget situation has slowly but steadily improved," Stephen Stanley, chief economist at Amherst Pierpont Securities LLC, wrote in a research report.

"The budget has consistently outperformed my expectations, as revenues enjoyed a cyclical recovery, while spending has been held in check by a combination of fiscal restraint enforced by a series of deals between Congress and the administration."

The ratio to GDP will begin widening again starting after 2017, according to CBO projections. Annual spending on Social Security and health-care programs is projected to climb as the population ages.

BLOOMBERG