Treasury to Borrow Less With Smaller Note and Bond Auctions

Banking, finance, and taxes

Published: April 30, 2014 10:05 am

This might not be a true surplus in the classic sense of budgeting, but it is a start. The U.S. Treasury may start borrowing less money via smaller bond and note auctions. The proposed changes would result in an expected cumulative reduction of $128 billion in coupon issuance over the next two years or so.

The prior recommendation for the Treasury to consider structurally increasing its cash balance would keep Treasury bill issuance static at current levels, while having reductions to coupon issuance. Under the proposed recommendation, the weighted average maturity is projected to reach 70 months by the end of FY 2016.
The TBAC report says:

Current deficit and borrowing projections indicate the Treasury is likely to be overfunded in Fiscal year (FY) 2014 and 2015 if it keeps the current calendar and size of coupon auctions unchanged and leave the projected $1.45 trillion of Treasury bills outstanding. Given expectations for stronger economic growth and increased tax receipts, the Treasury Marketable Borrowing announcement states that the Treasury will be overfunded by $115 billion for FY 2014 and the CBO projects that the Treasury will be overfunded by $166 billion for FY 2015.

While this sounds good for now, it is not an indefinite overfunding. Projections for Fiscal 2016 and beyond go back to an underfunded climate. It seems as though the low-rate environment is also encouraging the government to seek a continued gradual lengthening of the weighted-average maturity of the debt.

On which auctions would be reduced and for how long, the report said:

The committee recommended cutting 2-year coupon issuance by $1 billion per month from the current level of $32 billion to $28 billion by August 2014, maintaining the issuance size at $28 billion until September 2015, and then gradually increasing issuance size from $28 billion to $32 billion from September 2015 to January 2016. In addition, the committee recommended cutting the 3-year auction size by $1 billion per month from $30 billion to $26 billion from April 2014 to August 2014, maintaining the level at $26 billion from August 2014 to September 2015 and then gradually increasing the auction size from $26 billion to $30 billion from September 2015 to January 2016.

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