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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.
Following the announcement, the yield on the 10-year Treasury fell, but declines accelerated late in the morning following the release of economic data that showed activity in the US manufacturing sector contracted more than forecast, while job openings numbers suggested the labour market remained resilient.
The 10-year yield was down 0.07 percentage points at 4.81 per cent in morning 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 will announce its latest decision on monetary policy on Wednesday afternoon, but economists expect the central bank to keep its benchmark rate steady at a 22-year high.
