U.S. Markets

Treasury plans bigger debt auctions, warns on debt limit

WASHINGTON (Reuters) - The U.S. Treasury said on Wednesday it planned to hold larger debt auctions because of the winding down of the Federal Reserve’s bond-buying program, but warned it would only be able to pay all of the federal government’s bills through February.

Treasury Secretary Steven Mnuchin listens as U.S. President Donald Trump holds a meeting with workers employed by companies who increased pay and benefits after the recent tax legislation in the White House in Washington, U.S., January 31, 2018. REUTERS/Leah Millis

“Based upon available information, Treasury expects to be able to fund the government through the end of February,” Clay Berry, Treasury’s deputy assistant secretary for capital markets, said in a statement. “Treasury urges Congress to act promptly on this important matter.”

A Treasury official said in November that the U.S. government might only have enough money under the current debt limit to pay its bills through January.

Separately, the non-partisan Congressional Budget Office said that it thought the government would run out of cash to pay its bills in the first half of March.

It previously projected the crunch to come in late March or early April, but moved the date forward in part to take account of the impact of recent tax legislation.

While brushing up against the debt ceiling has become a fixture of U.S. political life in recent years, missing payments could trigger calamity in financial markets and a recession.

Treasury Secretary Steven Mnuchin wrote lawmakers to inform them the department would continue to suspend payments into federal employee retiree, health and disability funds through Feb. 28 in order to stay within the legal limit on borrowing.

Mnuchin called on the Republican-controlled Congress to lift the federal debt limit “as soon as possible” so the government could pay employee benefits and other obligations.

The fiscal outlook also played a role in Treasury’s decision to sell more nominal coupon debt as well as two-year floating rate notes at weekly auctions, Berry said.

Treasury anticipates increasing the size of two-year and three-year note auctions by $2 billion each per month over the next three months, beginning in February, Berry said.

It will also increase auction sizes for five-year, seven-year and 10-year notes as well as for the 30-year bond, beginning in February, Berry said.

Reporting by Jason Lange; Additional reporting by Tim Ahmann; Editing by Paul Simao and Peter Cooney