The US Treasury building
The US Treasury will increase issuance of shorter-dated notes at the pace it set three months ago, but slow the pace of 10- and 30-year bond issues © Celal Gunes/Anadolu Agency via Getty Images

The US Treasury department is slowing the pace at which it issues longer-dated debt, following a surge in borrowing costs that has roiled global markets.

The announcement on Wednesday follows the Treasury’s decision in August to dramatically increase its borrowing across the board, a move that in subsequent months sent yields on 10- and 30-year US government bonds to their highest levels in 16 years.

The Treasury said on Wednesday that it would continue to increase issuance of shorter-dated notes at the pace it set three months ago, while slowing the pace of 10- and 30-year bond issues.

To satisfy its borrowing needs, the Treasury will raise the auction sizes of the two- and five-year notes by $3bn per month, with a rise in 10-year note auctions by $2bn and in 30-year bond auctions by $1bn. In August, the Treasury had increased its 10-year auctions by $3bn and its 30-year auctions by $2bn.

In its quarterly refunding auctions next week, the Treasury department will sell $112bn worth of debt, lower than the $114bn put on offer in the previous quarter. Primary dealers had anticipated the Treasury would auction $114bn this quarter too.

The yield on the 10-year Treasury fell following Wednesday’s announcement, but declines accelerated later in the morning after the release of economic data — which included a weak reading on the US manufacturing sector — and in the afternoon after the Federal Reserve’s decision on interest rates.

The 10-year yield was down 0.11 percentage points at a two-week low of 4.76 per cent in afternoon trading in New York. The benchmark yield, which underpins pricing in asset classes across the globe, rose above 5 per cent in October for the first time since 2007.

“Bond markets like it — the estimate had been for $114bn but we are only getting $112bn, and in a fiscal world with little to cheer about, that’ll do,” said Jim Leaviss, chief investment officer of public fixed income at M&G Investments.

In a separate announcement on Monday, the Treasury said it expected to borrow $776bn in the period between October and December, less than the $852bn initially forecast, and lower than the $1tn borrowed in the previous quarter. The Treasury attributed the lower borrowing needs to “higher outlays”, suggesting higher tax income.

Bond yields, which move inversely to prices, have marched higher in recent months as investors have factored in the impact of the increased US government borrowing against the backdrop of the Federal Reserve signalling it will keep interest rates higher for longer.

The Fed on Wednesday kept interest rates steady at a 22-year high, but kept open the possibility of further monetary policy tightening owing to mounting evidence the US economy remains strong.

Copyright The Financial Times Limited 2024. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article