February 4, 2009 / 2:20 PM / 10 years ago

Treasury moves to broaden its debt offerings

WASHINGTON (Reuters) - The U.S. Treasury moved on Wednesday to broaden the range of debt it sells to raise trillions of dollars needed to cope with a deepening recession and the worst financial crisis since the Great Depression.

Announcing a record $67 billion quarterly debt refunding plan, the Treasury said it will reintroduce seven-year notes and double the number of 30-year bond auctions to eight per year.

The Treasury plans to announce in May whether to move to monthly 30-year bond auctions and will consider introducing other new benchmark securities.

The Treasury estimated it will need to borrow a record $1.5 trillion to $2.5 trillion in fiscal 2009 — even before funding the Obama administration’s proposed economic stimulus plan of nearly $900 billion and a still-developing financial stabilization program.

A senior Treasury official said that with the new debt issues and plans to increase issues of other maturities, the government can borrow enough to fund the stimulus.

“We feel prepared,” said Karthik Ramanathan, the Treasury’s acting assistant secretary for financial markets.

Ramanathan added that because it has a lower debt-to-gross domestic product ratio than other G7 nations, he sees little problem persuading investors to lend to the United States.

“If we can promote deep and liquid markets, we will continue to attract capital,” he said.

U.S. Treasury debt prices were lower following the refunding announcement, sending yields to fresh two-month highs. A better-than-expected report on services activity also prompted some funds to move from bonds into stocks.

The $67 billion to be raised from sales of three-year, 10-year and 30-year debt next week came in at the low end of analyst expectations. Some had predicted that the Treasury would offer as much as $75 billion.

“The Treasury could have announced more, but they are trying to keep their powder dry. Once we get a stimulus package announced, more creativity could be warranted,” said Kevin Flanagan, fixed-income strategist for global wealth management at Morgan Stanley in Purchase, New York.

The Treasury said it will sell $32 billion worth of three-year notes, $21 billion of 10-year notes and $14 billion of 30-year bonds to refund about $36.3 billion of maturing securities. It will raise $30.7 billion of new cash.

The new seven-year note will be auctioned monthly, in the same week as auctions for two-year and five-year debt. The first seven-year note auction will be held on February 26.


Members of the Treasury Borrowing Advisory Committee, made up of the primary government bond dealers, discussed the potential for other new securities, such as reintroduction of a four-year note, a 20-year bond and a “super-long” 50-year bond, but decided that these options were premature.

Although some analysts had suggested that the Treasury rearrange its inflation-indexed notes offerings, known as TIPS, to eliminate less popular maturities, a Treasury official said the TIPS program was still being studied for possible changes.

The Treasury said that based on current projections, it expects to reach its $11.315 trillion debt ceiling in the first half of 2009. The U.S. national debt on February 2 was $10.605 trillion.

“Given the uncertainty surrounding potential borrowing needs, Treasury will continue to keep Congress and the markets apprised of developments as the debt outstanding approaches the statutory limit,” the Treasury said.

Additional reporting by Richard Leong; Editing by Andrea Ricci

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