* Auction sizes will be unchanged next week
* Treasury plans first floating-rate auction for January
* Debt limit won't be breached until at least Labor Day
By Anna Yukhananov
WASHINGTON, July 31 The United States plans to
decrease the auction sizes of two- and three-year notes over the
coming months because improving government finances have reduced
the need for debt financing, the U.S. Treasury said on
In addition, the extra cash coming into the Treasury's
coffers should help it continue paying for government
operations, giving Congress time to raise the nation's borrowing
limit when it returns from a recess in early September, Treasury
The Treasury, in its quarterly refunding announcement, said
the auction size next week will remain the same size, with plans
to borrow $72 billion in debt securities.
But in the next month, the Treasury plans to cut by $1
billion the coupon auction size of two-year notes, Matthew
Rutherford, Treasury's assistant secretary for financial
markets, told reporters on Wednesday.
Auction sizes for both two- and three-year notes will fall
by a further $1 billion in September or October, he said.
The U.S. government's deficit has fallen faster than many
analysts were expecting this year, driven by higher tax revenue,
public spending cuts and big payments to the Treasury from
Fannie Mae and Freddie Mac, the two mortgage
finance companies were bailed out by taxpayers during the
Most of the additional funds have come from Fannie Mae,
which in May said it would return $59 billion to the Treasury in
Treasury on Wednesday also said it plans to hold its first
floating-rate note auction at the end of January, and it issued
final rules on Wednesday describing how these notes will be
structured. More details are to be provided about the size of
the auction in November.
The floating-rate notes, Treasury's first new security since
1997, are expected to attract investors who want to be sure they
do not miss out on higher returns if interest rates begin to
move higher. The launch also means Treasury now no longer plans
to introduce any other products, such as the 50-year bond it
In next week's coupon auction, the government will issue $32
billion in three-year notes, $24 billion in 10-year notes and
$16 billion in 30-year bonds, the Treasury said.
Although the battle in Washington over the deficit has faded
from view, the government's ability to keep paying its bills
The U.S. Treasury has been using emergency cash measures to
ensure it can keep paying the nation's bills while staying under
the $16.7 trillion limit on the nation's borrowing, which was
reinstated in mid-May. Republicans in Congress have refused to
raise the legal limit without further spending cuts.
U.S. Treasury Secretary Jack Lew has said these measures
should allow the government to keep funding itself at least
until Labor Day, on Sept. 2. But many private analysts say
Treasury will likely not run out of options until some time in
October or early November.
Treasury's Rutherford on Wednesday declined to specify how
long Treasury's maneuvers could hold off the day of reckoning,
saying forecasts for government spending were still uncertain.
"We strongly urge Congress to act in a timely manner (in
raising the debt limit)," he said. A showdown over the debt
ceiling in 2011 sparked wild stock market swings and cost the
United States its top-tier AAA credit rating, as markets fretted
about the chance of a U.S. default.
Treasury has already used several so-called extraordinary
measures, such as suspending sales of certain state securities.
But it has not yet dipped into the exchange stabilization fund,
which could free up another $23 billion. This seldom-used fund
was earmarked to stabilize currency rates and access the dollar
balance to avoid debt issuance.