Treasury Does Not Expect to Boost Auction Sizes for ‘Next Several Quarters’

Treasury Secretary Janet Yellen attending a discussion in Vienna, Va., on Jan. 8, 2024. (Samuel Corum/Getty Images)

The U.S. Department of the Treasury does not expect to boost the issuance of short- and long-term debt securities for “several quarters,” dismissing potential risk amid the vast budget deficit.

Ahead of next week’s quarterly refunding auction, Assistant Secretary for Financial Markets Josh Frost announced that the department will offer $125 billion of government bonds to raise a fresh injection of cash.

Treasury officials will auction three-year notes totaling $58 billion. They will also sell 10-year notes in the amount of $42 billion while issuing 30-year bonds worth $25 billion.

The department thinks that present auction sizes will be enough to address possible adjustments to the fiscal outlook and throughout the duration of the Federal Reserve’s balance sheet-reduction efforts.

“Based on current projected borrowing needs, Treasury does not anticipate needing to increase nominal coupon or FRN [floating rate notes] auction sizes for at least the next several quarters,” Frost said, adding that the “Treasury expects to modestly increase the offering size of short-dated bills being auctioned next week.”

In May, the central bank announced a revision to its quantitative tightening initiative, adjusting the pace of the institution’s drawdown of balance sheet assets. As of June 1, the Fed lowered the cap on Treasury securities that are allowed to mature and not be replaced to $25 billion.

Meanwhile, the Treasury Borrowing Advisory Committee (TBAC) assessed the share of Treasury bills—bonds that mature up to one year—as a share of net marketable securities.

The outside panel of market participants from the big banks concluded that the acceptable average range should be around 20 percent as it represented a decent trade-off between “financing costs over time, the use of bills to preserve regular and predictable coupon issuance, market structure and demand, and the impact of bills on Treasury’s debt maturity profile.”

TBAC members also noted that a 15 percent representation was a preferred lower-bound figure for acceptable market functioning. At the same time, they also purported that it is vital to retain flexibility in response to changing market dynamics.

On balance, T-bills typically offer lower average financing costs than other securities.

In a separate report, the Treasury stated that “T-bill demand has considerably increased in recent years.” Officials alluded to studies that “have suggested that increasing the supply of public short-term safe instruments” could “help improve the stability of the financial system.”

Over the last 13 months, the federal government has flooded the financial markets with roughly $2 trillion of short-term debt securities.

The Treasury Department published its latest Marketable Borrowing Estimates on July 29, forecasting that it will borrow approximately $1.3 trillion over the next six months.

During the July–September quarter of fiscal year 2024, the federal government expects to borrow $740 billion, down $106 billion from the previous projection in April. Officials plan to borrow another $565 billion in the October–December quarter.

In addition, the U.S. government borrowed $9 billion less in the April–June period, totaling $234 billion.

The $35 Trillion National Debt

The latest figures came in as the national debt breached $35 trillion, less than seven months after Washington touched the $34 trillion milestone.

The Congressional Budget Office (CBO), a nonpartisan budget watchdog, updated its economic and budget outlook in June. Officials anticipate that the national debt will top $50 trillion in the next decade amid growing mandatory spending levels and interest payments.

“The level of U.S. federal debt and its trajectory, as projected by the Congressional Budget Office, is not sustainable. And if something isn’t sustainable, it will stop,” Steve H. Hanke, a professor of applied economics at The Johns Hopkins University in Baltimore, told The Epoch Times.

He noted that there are likely just three options to get back on a sustainable track: rein in government spending, increase direct taxes, or raise the inflation tax.

“My preferred option is to rein in government spending,” Hanke, who served on former President Ronald Reagan’s Council of Economic Advisers, added. “The problem with that is that statutory fixes to rein in government spending in the United States have not been successful.”

A key challenge for lawmakers is that mandatory spending, like Social Security and Medicare, already accounts for 60 percent of the federal budget, exceeding $4.1 trillion.

By 2034, mandatory outlays will balloon to nearly $6.4 trillion and represent 62 percent of the projected $10.3 trillion budget, according to the CBO.

Interest payments will also eat up a large chunk of federal revenues as debt-servicing costs will control 17 percent of spending in the next 10 years, topping $1.7 trillion.

At the start of the year, Washington appeared to be on track to establish a commission to address the federal government’s mounting debt. The initiative seems to have smashed into a roadblock.

Critics contend that proposals coming out of the commission might suggest cutting Social Security benefits. Others say that officials might present recommendations to raise taxes.

But House Budget Committee members say it is imperative to address the national debt.

“Automatic cuts to Social Security are estimated to come in 2035 unless something is done about the deficit, and Medicare funds are expected to be exhausted as soon as 2028,” the committee said in a report. “Our deficit jeopardizes our national security and harms hardworking American families.”