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: Treasury starts to reduce borrowing as crisis response to pandemic ends

The refunding: As part of its regular quarterly refunding, the U.S. Treasury announced Wednesday it would sell $120 billion in notes and bonds next week. That’s down from $126 billion last quarter.

The department will issue $56 billion of 3-year Treasury notes
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0.731%

on Nov. 8, $39 billion of 10-year notes
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1.544%

on Nov. 9, and $25 billion of 30-year bonds
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1.937%

on Nov. 10.

Big picture: The Treasury took the first steps in a plan to reduce the size of its coupon auction sizes.

The department said it plans to reduce auction sizes across all nominal coupon securities starting with modest reductions this quarter.

Economists say the government currently has excess borrowing capacity because the response to the pandemic ballooned the federal fiscal deficit from $1 trillion in fiscal year 2019 to close to $3 trillion for the past two years. Analysts expect the deficit to narrow by $1 trillion in this fiscal year.

Senate Democrats and Republicans remain at an impasse on legislation to raise or suspend the debt ceiling though. A temporary measure agreed to by both sides has extended the debt limit until Dec. 3. Analysts estimate the department will run out of cash sometime between mid-December and mid-February.

Reducing coupon auctions: Treasury said it would reduce the sizes of 2-year, 3-year and 5-year notes by $6 billion each by the end of January. Treasury will also reduce the size of the 7-year note by $9 billion over the same period. 

The agency expects to reduce the size of both the new and reopened 10-year Treasury note auction by $2 billion starting in November.

Treasury will reduce both the new and reopened 20-year bond auction sizes by $4 billion. 

The department will reduce the November and December floating-rate note reopening auction sizes by $2 billion to $24 billion. The size of the next new-issue 2-year floating rate note in January by $2 billion to $26 billion. 

The changes will result in a $84 billion reduction of issuance for investors this quarter.

SOFR-indexed floating rate note: Treasury said it has decided that a floating rate note linked to the Secured Overnight Rate (SOFR) “is not necessary to meet its borrowing needs at this time.”

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