As Trea­sury Auc­tions Grow, Mnuchin Set to Top Record

The Bond Buyer - - Market News -

U.S. Trea­sury Sec­re­tary Steven Mnuchin is set to snatch from Ti­mothy Gei­th­ner the man­tle of sell­ing a record amount of notes and bonds as he seeks to fi­nance Amer­ica’s grow­ing bud­get deficit.

Many strate­gists at pri­mary-dealer firms pre­dict that the Trea­sury will in­crease coupon-bear­ing debt sales at the quar­terly re­fund­ing an­nounce­ment on Oct. 31, likely tak­ing the to­tal amount of 3-, 10- and 30-year se­cu­ri­ties be­ing of­fered at sales next week to an un­prece­dented level. Many also see is­suance re­main­ing skewed more heav­ily to­ward debt that ma­tures in five years or less.

The pre­vi­ous high for so-called re­fund­ing sales was $81 bil­lion, set by Gei­th­ner about nine years ago as Amer­ica was re­cov­er­ing from the Great Re­ces­sion. This time around, the bal­loon­ing bud­get short­fall is be­ing fu­eled by tax re­duc­tions, spend­ing hikes and an aging pop­u­la­tion rather than a dire econ­omy, and the un­em­ploy­ment rate has in fact fallen to the low­est in nearly half a cen­tury.

“Deficits aren’t go­ing any­where and Trea­sury will need to con­tinue to ramp up is­suance,” said Jon Hill, an in­ter­est-rate strate­gist at BMO Cap­i­tal Mar­kets. “They’ll stay fo­cused on the front-end given their stated guid­ance of try­ing to main­tain a broadly con­stant weighted-av­er­age ma­tu­rity of their out­stand­ing port­fo­lio.”

Amer­ica’s bor­row­ing needs pushed the bud­get gap to a six-year high in the lat­est fis­cal year.

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