WASHINGTON (Reuters) - The U.S. Treasury Department said on Wednesday it will launch a long-planned 20-year bond and increase securities auction sizes across a range of maturities to raise cash to meet record government borrowing needs caused by the novel coronavirus outbreak.
Treasury also made clear it intends to try and move away from its current focus on Treasury bills that have helped raise urgent funds over the past six weeks in favor of spreading debt over a longer maturity structure over the coming quarters.
That said, Treasury noted it would continue to fill some of its financing needs with regular issues of cash management bills. The department has issued more than 30 cash management bills since mid-March, compared with two in February.
“While the initial increases in financing related to the COVID-19 outbreak response were focused on Treasury bills, Treasury expects to begin to shift financing from bills to longer-dated tenors over the coming quarters,” Brian Smith, Treasury’s assistant secretary for federal finance, said in a statement.
“In light of the substantial increase in borrowing needs, Treasury plans to increase its long-term issuance as a prudent means of managing its maturity profile and limiting potential future issuance volatility,” he added.
Following the announcement, yields on the U.S. 30-year bond rose to their highest level since April 14 and yields on the 10-year note also climbed.
In the statement, Treasury said it intends to increase auction sizes across all nominal coupon tenors over the May-to-July period, with the increases larger in the 7-year, 10-year, 20-year and 30-year categories. The largest increase will be on the 10-year note.
It also plans to “modestly” increase auction sizes for floating-rate notes, but keep auction sizes for Treasury Inflation-Protected Securities unchanged.
On Monday, the department said it expects to borrow $2.999 trillion during the April-June quarter, five times larger than the previous single-quarter record set during the 2008 financial crisis.
Congress has appropriated nearly $3 trillion in recent weeks as it seeks to stem the economic harm on businesses and households from widespread business shutdowns implemented to reduce the spread of the coronavirus.
As previously flagged, Treasury will offer a 20-year bond, in an initial offering size of $20 billion, with the first auction taking place on May 20, 2020. The overall offering size over the next three months of $54 billion is more than recommended by the Treasury Borrowing Advisory Committee.
A senior Treasury official told reporters strong demand was anticipated for the 20-year bond, and that the difference was partly due to the committee’s estimate having been formulated before the coronavirus outbreak.
“It’s clear that the Treasury is starting to finance out the debt faster than most people anticipated. Even as people knew that the deficit is going to grow, expectations on the 20-year bond were in the teens to low-teens, but they start with $20 billion,” said Jim Vogel, senior rates strategist at FHN Financial in Memphis, Tennessee.
The department also said it is offering $96 billion of Treasury securities to refund approximately $57 billion of privately-held Treasury notes and bonds maturing on May 15, 2020.
Treasury’s previous record for borrowing for a full fiscal year was $1.8 trillion in 2009.
Reporting by Lindsay Dunsmuir; Additional reporting by Gertrude Chavez in New York; Editing by Paul Simao