The U.S. government will push its fundraising to new extremes this quarter to cope with a budget deficit unseen since the country mobilized to fight World War II.
The Treasury expanded its plans for borrowing at longer maturities in the coming months, saying last week it will sell a record $112 billion of securities at this week's so-called quarterly refunding of maturing Treasuries. Over the three months through October, it will boost its offering of notes and bonds by a total of $132 billion compared with the previous quarter, and rely more heavily on securities maturing in seven to 30 years.
The latest deluge of debt sales exceeded most of Wall Street's expectations, but it is unlikely to overwhelm the market's appetite. Treasury officials expressed satisfaction last week with continued investor demand at "record-low interest rates." Federal Reserve buying has also helped — it's soaking up roughly $80 billion of Treasuries a month, and there may be more to come.
A higher Fed tempo, as well as a tilt in purchases toward longer-dated bonds, could be unveiled as soon as next month, after the central bank conducts a review of policy objectives.
"All eyes are on the Fed" in the wake of Wednesday's Treasury plans, said Priya Misra, head of global rates strategy at TD Securities.
Fed Chairman Jerome Powell, in rare comments on fiscal policy in recent months, said he backed more spending to address the COVID-19 crisis — and deferred a focus on deficits and debt to a later time, when the U.S. economy has recovered.
The White House and congressional negotiators are aiming for a deal by the end of this week on another coronavirus relief package, though lawmakers are still bickering over the size, with Republicans increasingly focused on the ballooning fiscal deficit. The self-imposed deadline comes after crucial aid funds — including expanded unemployment benefits — expired last month and the economic recovery slowed amid rising virus outbreaks in the Sun Belt states.
The Republicans have backed a $1 trillion package, while Democrats approved a $3.5 trillion one in the House. The Treasury penciled in $1 trillion in additional financing needs in releasing broad borrowing estimates earlier this week.
Regardless of the final count for the looming bill, the Treasury is now shifting its debt issuance toward longer-dated securities — after its heavy reliance on short-term debt to raise funds quickly earlier this year.
"Treasury will continue to shift financing from bills to longer-dated tenors over the coming quarters, using long-term issuance as a prudent means of managing its maturity profile and limiting potential future issuance volatility," the department said in a statement Wednesday.
JPMorgan Chase & Co. strategists calculated recently that the average maturity of Treasury debt had declined to its shortest since 2011.