The Treasury Department doesn’t expect to boost the issuance of short- and long-term debt securities for “several quarters,” dismissing potential risk amid the vast budget deficit.
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. “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.
The outside panel of market participants from the big banks concluded that the acceptable average range should be about 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 suggested that it’s vital to retain flexibility in response to changing market dynamics.
On balance, T-bills typically offer lower average financing costs than other securities.
Over the past 13 months, the federal government has flooded the financial markets with roughly $2 trillion of short-term debt securities.
During the July-to-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-to-December quarter.
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 level of U.S. federal debt and its trajectory, as projected by the Congressional Budget Office, are not sustainable. And if something isn’t sustainable, it will stop,” Steve H. Hanke, a professor of applied economics at 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,” said Hanke, who served on former President Ronald Reagan’s Council of Economic Advisers. “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, such as 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. Debt-servicing costs will control 17 percent of spending in the next 10 years, topping $1.7 trillion.
But House Budget Committee members say it’s imperative to address the national debt.