U.S. Treasury plans to announce auction size changes in February

WASHINGTON (Reuters) – The U.S. Treasury said on Wednesday it intends to announce changes in the sizes of debt auctions in February and will hold them steady in the coming months despite plans by the Federal Reserve to gradually wind down its portfolio of public debt.

“The magnitude and allocation of increases in auction sizes will depend in part on projections for the fiscal outlook,” Monique Rollins, Treasury’s acting assistant secretary for financial markets, said in a statement.

Rollins said Treasury anticipated “gradual adjustments” to its nominal coupon and 2-year floating rate note issues.

U.S. Treasury yields declined after the refunding announcement.

The Fed announced in September a plan to start reducing the U.S. central bank’s more than $4 billion balance sheet in October, part of a multi-year process to ease a monetary stimulus program aimed at fighting the 2007-2009 recession.

That means the Treasury will eventually have to issue more bonds to private investors rather than to the central bank, a process that will put upward pressure on Treasury yields.

On Wednesday, the Treasury said it was offering $62 billion in securities to refund approximately $42.7 billion in privately-held maturing Treasury notes.

The Treasury also will face pressure to pay the government’s bills if President Donald Trump and Congress allow a limit on federal borrowing to expire on Dec. 8.

If Washington fails to renew Treasury’s borrowing authority, the department may only have enough money to pay all the nation’s bills through January, Rollins said, repeating a timeline previously announced by Treasury Secretary Steven Mnuchin.

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 an economic recession.

“It is currently too early to provide a more precise forecast” on how long Treasury can pay all the bills without renewed borrowing authority, Rollins said.

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