Bloomberg News

Treasury Plans $72 Billion Debt as Negative Yield Sale Seen

February 01, 2012

(Updates with Miller’s comments in ninth paragraph.)

Feb. 1 (Bloomberg) -- The U.S. Treasury Department said it plans to sell $72 billion in notes and bonds at next week’s quarterly refunding, while a Wall Street advisory panel urged the government to allow negative yields at bill auctions.

The government intends to auction $32 billion in 3-year notes on Feb. 7, $24 billion in 10-year notes on Feb. 8 and $16 billion in 30-year bonds on Feb. 9. The amount is unchanged from the last quarter and the sales will raise about $22.4 billion in new cash.

“In the coming weeks there will be a seasonal increase in borrowing needs ahead of the April 2012 tax season,” the Treasury said in a statement today. “Treasury plans to address this seasonal borrowing need through increases in regular bill auction sizes and cash management bills.”

An accelerating economy is boosting tax revenue, helping the administration of President Barack Obama control the government’s budget deficit. The nonpartisan Congressional Budget Office said yesterday it expects the gap may narrow to $1.1 trillion this fiscal year, down from $1.3 trillion last year.

The U.S. Treasury Department’s borrowing advisory committee “unanimously recommended that the Treasury Department allow for negative yield auction results as soon as logistically practical,” referring to bill auctions, according to a report released today.

Market Function

“There was a lengthy discussion regarding the bid-to-cover ratios at recent Treasury bill auctions. It was broadly agreed that flooring interest rates at zero, or capping issuance proceeds at par, was prohibiting proper market function,” according to the report. The report from the Treasury Borrowing Advisory Committee, known as TBAC, was dated yesterday.

A Treasury official who briefed reporters on condition of not being named said a decision on negative yield auctions could be made as soon as May.

The advisory committee also reported that it is unanimously in favor of Treasury issuing floating-rate notes. The Treasury official said that a decision on that matter may also be made by May.

Bid-to-cover ratios at auctions of U.S. Treasury securities have been “very strong,” said Mary Miller, the Treasury Department’s assistant secretary for financial markets.

Speaking at a press briefing in Washington today, she said she sees “unshaken faith” for U.S. Treasuries, among both domestic and international investors.

The Treasury said in today’s written statement that it plans to gradually increase gross issuance of Treasury Inflation-Protected Securities, known as TIPS. The majority of the increase in the TIPS issuance will “likely occur in the 5- and 10-year tenors,” Treasury said.

Over the past two years, Treasury has been increasing TIPS issuance, accelerating the frequency of auctions and moving 20- year TIPS to 30-year TIPS, the Treasury said.

--With assistance from Ian Katz and Brian Faler in Washington. Editors: Kevin Costelloe, Christopher Wellisz

To contact the reporters on this story: Meera Louis in Washington at mlouis1@bloomberg.net Cheyenne Hopkins at chopkins@bloomberg.net;

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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