- The Treasury Department is planning to raise $9.8 billion by auctioning $112 billion in debt to refund notes totaling about $102.2 billion that are set to mature on Nov. 15.
- It will increase the sizes for the 2-, 5-, 3- and 7-year auctions in the quarter through January.
- Investors were closely watching this announcement to see how the Treasury would work to finance the country's $1.7 trillion budget deficit.
- The announcement is important because the Federal Reserve's ongoing campaign to fight inflation has boosted debt service costs for the federal government and bond yields have kept rising even as the Fed has held its benchmark lending rate steady.
- Treasury yields, which influence borrowing costs on all sorts of loans, moved lower after the announcement.
The Treasury Department on Wednesday announced an increase in its debt auctions for the November-January quarter in order to help with rising national debt, saying another increase will be on the way next quarter.
The Treasury will raise $9.8 billion by auctioning $112 billion in debt to refund notes totaling about $102.2 billion that are set to mature on Nov. 15. That’s slightly lower than Wall Street expected. Some $48 billion will be in 3-year notes, $40 billion in 10-year notes and $24 billion in 30-year bonds.
The department also said it would increase the 2- and 5-year auction sizes by $3 billion per month, totaling $9 billion by the end of January. The 3-year and 7-year auctions will increase by $2 billion and $1 billion per month, respectively, totaling $6 billion and $3 billion before February.
“One interpretation of the significant steepening of the two-year to ten-year yield curve is that market participants are revising up their expectations for near-term growth and revising down the probability of a near-term recession,” wrote Deirdre Dunn and Colin Teichholtz, chair and vice chair of the Treasury Borrowing Advisory Committee in a letter accompanying the announcement.
Investors have been focused on how the federal government—now facing a $1.7 trillion budget deficit—will cover that shortfall. They were paying close attention this week to the auction announcement, looking for insight into where yields may go for the remainder of the year. Yields have been hitting highs not seen since before the Great Recession in the past few months, as investors sold off Treasury debt.
“There is a view among market participants that the growing imbalance between supply of and demand for U.S. Treasury debt may also have contributed to the sell-off,” the chairs wrote in their letter.
High yields have been doing much of the Federal Reserve’s tightening work, with Deutsche Bank this week estimating the bonds sell-off was having the effect equal to about three 25-basis-point rate increases. The Fed’s Open Markets Committee is expected to keep rates at their current levels later on Wednesday.
In the letter, the Treasury committee said it expects a need for further increases next quarter but do not yet anticipate the need for further increases beyond that.
Treasurys rallied on the announcement. In mid-morning trading, the yield on the 10-year Treasury was down 15 basis points to 4.79% while the 2-year was down 9 basis points to 5.01%. Treasury yields are inversely related to Treasury prices.