The U.S. Department of the Treasury announced it will continue to cut auction sizes, but by a smaller increment than in the last few months.
According to a press release by the U.S. Treasury, a decline in government borrowing will result in the department offering $103 billion of debt to refund about $47.8 billion set to mature in mid-May. About $55.2 billion of new cash will be raised through the issuance of the securities, which includes the sale of $45 billion in 3-year notes, $36 billion in 10-year notes, and $22 billion in 30-year bonds.
The U.S. Treasury finances public debt through the sale of cash management bills (CMBs), monthly notes, weekly bill auctions, bonds, two-year Floating Rate Note (FRN) auctions, and Treasury Inflation-Protected Securities (TIPS) to investors through public auctions. The department, which had been reducing auction sizes due to the government’s lessening borrowing needs, will make smaller reductions from May to July, indicating the need to borrow is leveling out.
As a result of the changes in nominal coupon auction sizes, a $69 billion reduction will be issued to private investors throughout the second quarter, compared to February through April 2022, the release said. The Wall Street Journal reported the Treasury previously announced cuts of $111 billion and $84 billion in the last two refunding processes compared to the prior quarter.
The department expects to reduce the size of 2-, 3- and 5-year note auctions by $1 billion a month over the next three months, the release said, resulting in a decrease of $3 billion for each by the end of July. Additionally, the Treasury will reduce the size of a 7-year note auction by $2 billion a month, resulting in a decrease of $6 billion by July.
Decreases of $1 billion to new and reopened 10-year note auction sizes and 30-year bond auction sizes are planned for May. The department also anticipated a reduction of $2 billion to new and reopened 20-year bond auction sizes for May.
The release notes that the department plans to maintain the May and June reopening 2-year FRN auction sizes as well as the July new issue 2-year FRN auction size, both of which were included in previous auction size reductions.
Additionally, the Treasury plans to maintain the May 10-year TIPS reopening auction size, currently at $14 billion, but increase the June 5-year TIPS reopening auction size by $1 billion from December to $18 billion. The department also intends to increase the July 10-year TIPS new issue auction, up $1 billion from January to $17 billion.
“Given Treasury’s desire to stabilize the share of TIPS as a percent of total marketable debt outstanding and continued robust demand, Treasury will continue to monitor TIPS market conditions and consider whether subsequent modest increases would be appropriate,” the release said.
Treasury officials said they have been reducing auction sizes across all nominal coupon securities since last November based on strong tax receipts and public communications from the Federal Open market Committee. The department said additional reductions later in the year may be needed depending on borrowing needs.
Stephen Stanley, chief economist at Amherst Pierpont, said in the WSJ article that auction sizes could increase in 2023.