(Bloomberg) -- The U.S. Treasury Department will raise the amount of long-term debt it sells to $78 billion this quarter while launching a new two-month bill. It also will lean more heavily on maturities out to five years.
In its quarterly refunding announcement on Wednesday, the Treasury boosted the auction sizes of coupon-bearing and floating-rate debt from $73 billion the previous quarter. It was the third consecutive quarterly increase, as President Donald Trump’s fiscal policies widen the nation’s budget deficit.
The Treasury will sell $34 billion in three-year notes on Aug. 7, compared with $33 billion it sold last month and $31 billion in May. The government increased to $26 billion the sale of 10-year notes to be auctioned on Aug. 8, from $25 billion last quarter, and the 30-year bonds to be sold on Aug. 9 to $18 billion from $17 billion in May, Treasury said. The sales will raise new cash of $39.8 billion.
The benchmark 10-year Treasury yield rose above 3 percent for the first time since June 13 in the wake of the refunding announcement. The yield curve from 5 to 30 years steepened on the announcement, with the spread rising to 25.2 basis points.
The department will start sales of a new two-month bill in October. This security will settle on Tuesdays rather than Thursdays.
Other Maturities
The Treasury also said in the statement it plans to boost auction sizes of all other maturities over the coming quarter. Treasury will boost the size of its two-, three- and five-year notes by $1 billion per month over the quarter, while increasing the floating two-year auction by $1 billion in August. The department will raise the size of its seven-, 10- and 30-year notes by $1 billion in August, holding auction sizes at that level through October. The changes will result in an additional $30 billion of new issuance.
The department again left unchanged the size of inflation-linked securities, or TIPS. Treasury is studying whether to introduce a second new five-year TIPS to its auction calendar. The department is still analyzing potential additions and expects to make an announcement in November.
Given seasonal patterns, “bill supply is anticipated to gradually increase,” Treasury said. “This increased bill supply will include the launch of the new benchmark 2-month bill in October.” The department said it will meet any unexpected change in financing needs with increased bill sales.
The Treasury’s borrowing needs in the second half of the year will be the most since the financial crisis a decade ago, with the Treasury expecting to issue $769 billion in net marketable debt, the department said Monday. That compares with $1.1 trillion in July-December 2008, when America was in the midst of its worst recession in generations.
Budget Shortfall
Tax cuts, higher government spending and an aging population are expected to push the federal budget shortfall to $804 billion in the current fiscal year, with the deficit exceeding $1 trillion in 2020, according to the Congressional Budget Office. The deficit totaled $607 billion in the first nine months of the 2018 fiscal year that ends Sept. 30, compared with $523 billion from the same period a year earlier.
Treasury Secretary Steven Mnuchin has said repeatedly that corporate and individual tax cuts will fuel faster economic growth that will boost tax revenue and shrink the deficit. Gross domestic product accelerated in the second quarter to the fastest pace since 2014, though many economists say the expansion will moderate in coming quarters and years.