April 26, 2018 / 3:19 PM / 3 months ago

TD Securities sees U.S. raising debt supply, mulling new maturities

NEW YORK (Reuters) - The U.S. Treasury Department is expected to increase the amount of debt it would sell at its May refunding in an effort to raise more cash to make up for a growing budget deficit, TD Securities strategists said on Thursday.

The Treasury may ponder whether to roll out new debt maturities to fund its operations and obligations. It may offer “relatively soon” a two-month bill issue, and could discuss the possibility of a one-year floating-rate note and might reopen a discussion about a 20-year bond, TD Securities’ senior U.S. rates strategist Gennadiy Goldberg and head of global rates strategist Priya Misra wrote in a research note.

Moreover, they forecast it would add a second issue of five-year Treasury Inflation Protected Securities in October.

The U.S. Treasury will announce its latest borrowing projections and auction sizes at its May refunding next week.

They said the Treasury will likely enlarge the three-year note auction to $32 billion; 10-year auction to $25 billion and 30-year auction to $17 billion.

At the February refunding, it sold $26 billion in three-year debt; $24 billion 10-year notes and $16 billion in 30-year bonds.

“The U.S. Treasury faces sharply higher funding needs over the coming years,” Goldberg and Misra wrote.

They estimated the federal deficit would rise to $800 billion fiscal 2018 from $665 billion in the prior fiscal period. It would top $1.1 trillion in fiscal 2019.

The growth in government borrowing stemmed from the massive tax overhaul last December and a two-year budget agreement that raised spending in February.

Adding to the increase in Treasury sales, the Federal Reserve will reduce purchases of Treasuries as it has embarked on shrinking its $4 trillion balance sheet.

Net Treasury issuance in fiscal 2019 would increase to $1.4 trillion, compared with $527 billion in fiscal 2017, according to Goldberg and Misra.

Reporting by Richard Leong; Editing by David Gregorio

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