As Treasury Auctions Grow, Mnuchin Set to Top Record
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.