President Donald Trump's massive fiscal stimulus plans are adding to the U.S. debt overload and forcing the government to drive up bond issuance as the Federal Reserve shrinks its balance sheet.
The Treasury Department will boost the amount of long-term debt it sells to $73 billion this quarter, lifting the auction sizes of coupon-bearing and floating-rate debt again after doing so last quarter for the first time since 2009, the agency said Wednesday in its quarterly refunding announcement.
The country's debt load is seen spiraling compared with the rest of the world, with forecasts showing that in five years it will have a bleaker outlook than even Italy, the perennial poor man of the Group of Seven industrial nations.
"You think about the second half of the year, Treasury has a ton of debt to get out there, and pretty quickly it needs to ramp up issuance sizes even more than today" in maturities of five-years and greater, Mike Schumacher, head of rates strategy at Wells Fargo Securities, said on Bloomberg TV.
In a surprise to some dealers, Treasury again left inflation-linked securities unchanged. But it's investigating adding another five-year sale to its regular calendar. Treasury also said it's planning to issue a new two-month bill later in 2018.
After keeping borrowing relatively stable in recent years, the Treasury highlighted the Trump administration's need to sell debt to help pay the government's bills as the deficit swells and the Fed allows maturing securities on its $4.4 trillion balance sheet to roll off gradually. The possible new bill maturity comes after a deluge of sales over the first quarter was partly to blame for money-market rates rising sharply.
New Cash
The Treasury will sell $31 billion in three-year notes on May 8, versus $30 billion it sold last month and $26 billion in February, according to the statement released in Washington. The government increased to $25 billion the sale of 10-year notes, from $24 billion last quarter, and the 30-year bonds to $17 billion from $16 billion, also to be auctioned next week. The sales will raise new cash of $33.9 billion.
In the statement, the Treasury said it plans over the coming quarter to boost auction sizes of other maturities.
The department will notch higher sales of two- and three-year note auctions by $1 billion per month over the quarter, compared with monthly rises over the past quarter of $2 billion. It will also boost five-, seven-, 10-, and 30-year note sales by $1 billion starting in May and lift floating rate notes by $1 billion in May. The changes will result in an additional $27 billion of new issuance.
