October 19, 2007 / 4:30 PM / 10 years ago

UPDATE 2-U.S. Treasury seeks advice on debt auction

(Adds trader comment in paragraphs 8-10)

By Patrick Rucker

WASHINGTON, Oct 19 (Reuters) - The U.S. Treasury Department on Friday said it is seeking bond dealer advice on whether it should change its auction schedule to be in line with current fiscal and economic conditions.

In a survey sent to 22 primary dealers before meetings to determine its next quarterly refunding plans, the Treasury also asked them what changes to the auction schedule could be made to broaden investor participation.

“Given your current views on the economy and the fiscal situation, do you believe the current financing schedule is well-suited to meet Treasury’s financing needs going forward?” the survey asks.

It also asks traders to comment on “recent volatility and conditions in the bill sector in both primary and secondary markets and its potential implications”.

The survey comes a week after the Treasury announced that the federal budget deficit fell for a third straight year to $163 billion in fiscal 2007 as tax receipt growth outstripped spending increases.

The Treasury had been cutting back debt issuance due to the improved fiscal picture. However, a slowing economy could prompt an increase in borrowing, analysts say, if tax receipt growth fails to keep up with war spending and growth in entitlements such as Social Security and Medicare.

The White House Budget office estimated in July that the deficit could swell again to $258 billion in fiscal 2008, which started Oct. 1.

Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. in New York, said that the question on the Treasury bill volatility was aimed at trying to eliminate distortions that have may been prompted by credit market turmoil.

“There’s a lot more demand for bills because the environment is more anxious. Clearly, there’s not enough bills to go around,” he said.

The Treasury normally wants a stable bill market to keep its borrowing costs low and would not want such technical factors to “send a false signal” that could impact financial markets more broadly, he said.

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