US Treasury Issues More Government Debt to Manage Budget Deficit

Sheets of one dollar bills run through the printing press at the Bureau of Engraving and Printing in Washington, D.C., on March 24, 2015. Mark Wilson/Getty Images

The U.S. Treasury plans to hold massive debt auctions to help plug the gaping hole in the budget deficit.

In the coming three months, officials announced on Jan. 31 that they would bolster the size of auctions to refund more than $105 billion of privately held Treasury notes maturing on Feb. 15. It is estimated that the issuance will generate nearly $16 billion in new cash from private investors.

Josh Frost, the assistant secretary for financial markets, confirmed that the 2- and 5-year bonds will increase by $9 billion to a record $70 billion. For the benchmark 10-year Treasury, officials plan to boost the new issue and reopening auction size by $2 billion to $39 billion. The 20-year bond will stay the course, while the new issue size for the 30-year bond will jump by $1 billion to $22 billion.

The Treasury Department believes this will be the final upward adjustment in coupon auctions for the next couple of years as “these cumulative changes will leave Treasury well positioned to address potential changes to the fiscal outlook.”

“Based on current projected borrowing needs, Treasury does not anticipate needing to make any further increases in nominal coupon or [Floating Rate Notes] FRN auction sizes, beyond those being announced today, for at least the next several quarters,” Mr. Frost confirmed in the announcement.

E.J. Antoni, a Heritage Foundation economist, argues that the “eye-wateringly large” auctions are part of the Treasury’s efforts to “shift the shorter-term debt in [Janet] Yellen’s desperate attempts to keep long-term yields down.”

“Only question is how much will [Jerome] Powell & Co. help?” he asked on X, formerly Twitter.

Following the Treasury announcement, the bond market was red across the board, with the benchmark 10-year yield tumbling below 4 percent. The 2-year Treasury yield dropped toward 4.24 percent, while the 30-year bond shed 7 basis points to under 4.21 percent.

Other Borrowing Plans

A separate Marketable Borrowing Estimates from the Treasury, released on Jan. 29, supports the department’s expectation that much of the explosion in debt issuance will subside.

In the January to March 2024 quarter of fiscal year 2024, the federal government anticipates borrowing $750 billion, down $55 billion from the previous forecast in October, “largely due to projections of higher net fiscal flows and a higher beginning of quarter cash balance.”

During the April to June quarter, the Treasury predicts it will borrow just $202 billion, “assuming an end-of-June cash balance of $750 billion.

To kick off the fiscal year, the Treasury borrowed $776 billion, matching its estimate.

Wolf Richter, an economist, asserts that the Treasury’s borrowing will be higher than what was listed in the official estimates.

“The Treasury Department’s ‘actual’ amounts of marketable securities added to the pile in Q3 and Q4 ... don’t quite match the actual increase in marketable securities,” Mr. Richter stated.

Total Treasury securities are separated into two parts: marketable and non-marketable. The former is what investors buy and sell, and the latter is what government pension funds and the Social Security Trust Fund purchase.

Rep. Thomas Massie (R-Ky.) wears a pin tracking the U.S. National Debt in Washington on Nov. 14, 2023. Anna Rose Layden/Getty Images

“The Treasury Department is talking about the issuance of marketable securities,” he noted.

“In three months, we’ll know how much the expected addition of $760 billion for Q1 actually added to marketable securities in Q1. And in six months, we’ll know how much the expected addition of $202 billion for Q2 will have actually added to marketable securities in Q2. We’ll surely take a look.”

In recent months, domestic and foreign investment demand for long-term Treasury securities has been lackluster.

The Jan. 17 $13 billion auction for 20-year bonds saw primary dealers—financial institutions that buy the remaining supply that investors do not want—scooping up approximately 17 percent, slightly above the annual average of 12 percent.

‘Rebellion’

The national debt topped $34 trillion before 2023 was finished. Since the beginning of the year, it has risen by roughly $139 billion, and economists warn that it could reach $35 trillion by the summer.

With mounting U.S. debt, JPMorgan Chase CEO Jamie Dimon believes this will eventually ignite a “rebellion” across global financial markets.

Today, the debt-to-GDP ratio is around 120 percent, something that Mr. Dimon described as a “hockey stick,” though it will worsen by 2035 when it hits 130 percent.

“We kind of got time. But when it starts, markets around the world, there will be a rebellion,” he told a panel discussion at the Bipartisan Policy Center on Jan. 26. “It is a cliff. We see the cliff. It’s about 10 years out. We’re going 60 miles an hour.”

A significant reason for this possible rebellion is that foreign entities, particularly China and Japan, hold about one-quarter, or $7.8 trillion, of U.S. government debt.

Recent Treasury data showed that Japan raised its U.S. government debt holdings to nearly $1.128 trillion. China, which has been gradually shedding its Treasury holdings, added close to $13 billion in November. In total, Beijing maintains about $782 billion in U.S. debt.

Last year, the Congressional Budget Office (CBO) forecast that the national debt will exceed $50 trillion by 2033.

In response to ballooning debt concerns, Congress has been inching closer to establishing a debt commission to address the increasing red ink by proposing various measures and solutions.