Bond Sale Plan Dismays Traders Hoping for Cutbacks
Uncle Sam is rolling in cash, but it still isn’t enough to forgo new borrowing entirely, the U.S. Treasury reminded Wall Street on Wednesday.
The government said it will sell $25 billion in long-term notes and bonds next week and plans to continue selling its current lineup of securities for the foreseeable future--even as government coffers fill with tax revenue generated by the economic expansion.
The announcement disappointed some bond traders, who hoped that the Treasury would say it’s terminating the issue of certain securities entirely.
In particular, some traders bet the Treasury would terminate the 30-year bond, auctions of which have been cut back sharply in recent years. Instead, the Treasury said it will sell $5 billion of 30-year bonds next Thursday.
The yield on the latest 30-year issue rose slightly Wednesday, to 5.76% from 5.73%, in part reflecting traders’ disappointment.
Investors “had been hoarding bonds because they thought there weren’t going to be so many out there,” said Ken Anderson, a manager at Evergreen Asset Management in White Plains, N.Y.
Likewise, the yield on the one-year T-bill jumped to 6.11% from 6.06% after rumors that the Treasury would end auctions of one-year bills proved false.
Still, officials said discussions continue with Congress on terminating the sale of one-year bills.
“We’re in a very strong fiscal position,” Gary Gensler, the Treasury’s undersecretary for domestic finance, told reporters. “Longer-term, we think it’s appropriate to eliminate the one-year bill.”
As for other debt auctions, Gensler said that, after several years of trimming, the rest of the schedule of note and bond sales will remain unchanged because the Treasury still must contend with large amounts of maturing debt that needs to be refinanced.
Tax revenue generated by the nation’s record-length economic expansion has put the government on course for a third-straight annual budget surplus--of $211 billion or more in the fiscal year that ends Sept. 30, the White House says.
The surplus has allowed the Treasury to pay down a record amount of its debt and buy back outstanding bonds for the first time in 70 years. Buybacks will continue in the third and fourth weeks of each month this year and will incorporate bonds maturing in as few as 10 years, officials said.
The Treasury estimates it will pay off a net $45 billion in maturing debt this quarter.
But with nearly $4 trillion in debt outstanding, the Treasury still must continue to issue some new bonds as that debt rolls over on a regular basis.
In the last three years, the Treasury has reduced by roughly 10% the total amount of government securities held by the public.
Besides the new 30-year bonds to be sold next Thursday, the Treasury will sell $10 billion in 4 3/4-year notes Tuesday and $10 billion in 10-year notes Wednesday.
