May 4, 2020 / 4:43 PM / a month ago

Record U.S. Treasury borrowing expected in coronavirus fight

BOSTON/NEW YORK (Reuters) - The U.S. Treasury on Monday will announce just how much new debt, expected to hit a record amount, it must issue to finance the budget-stretching stimulus measures aimed at combating the economic fallout from the COVID-19 pandemic.

With nearly $3 trillion approved by Congress to aid businesses, workers, hospitals, and state and local governments, as well as for other virus-related measures, the Treasury will have to issue new securities to pay for it all.

“Even before the pandemic there was going to be some increased funding needs going forward. But now all things are out the window,” said Mike Lorizio, senior fixed income trader at Manulife Investment Management in Boston.

The Treasury will announce borrowing projections at 3 p.m. EDT (1900 GMT) today.

Analysts at Jefferies expect second quarter borrowing needs to be revised up to $1.99 trillion, exceeding the most the Treasury ever borrowed for a full fiscal year: just under $1.8 trillion in 2009 due to the financial crisis.

Another $1 trillion in borrowing would be on tap for the third quarter based on Congressional Budget Office cost estimates, according to a JEF Economics report.

Lorizio said issuance should be in an “easily manageable size that can be digested by the market, with room to grow.”

“Regular and predictable is what the Treasury wants to be. They don’t want to disrupt the market,” he added.

But the unpredictability of the virus can make future borrowing plans murky.

Jon Hill, interest rate strategist at BMO Capital Markets in New York, said it will be “really, really hard” to forecast where things will be at the end of June or the end of September.

“We could see deficits blow out once again if all these (economic) reopenings fail, or it could go fine and some of the funding needs might not be as dire as expected,” he said. “There are huge error bands around these estimates.”

The Treasury will give more detail about its upcoming debt issuance on Wednesday, which is expected to include the launch of a 20-year bond and an increase in bond auction sizes across the curve.

“Current financing needs also make it such that Treasury does not need to make any offsetting cuts to 10- or 30-year offerings to ‘make room’ for the new 20-year bond,” the JEF Economics report said. “At this point, Treasury needs to find every available avenue to raise as much cash as efficiently as possible.”

Reporting By Ross Kerber in Boston, Karen Brettell in New York and Karen Pierog in Chicago; Editing by Alden Bentley and Jonathan Oatis

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