WASHINGTON – The U.S. Department of the Treasury is offering $72 billion of Treasury securities to refund approximately $21.8 billion of privately held securities maturing on February 15, 2011. This will raise approximately $50.2 billion. The securities are:
- A 3-year note in the amount of $32 billion, maturing February 15, 2014;
- A 10-year note in the amount of $24 billion, maturing February 15, 2021; and
- A 30-year bond in the amount of $16 billion, maturing February 15, 2041.
The 3-year note will be auctioned on a yield basis at 1:00 p.m. EST on Tuesday, February 8, 2011. The 10-year note will be auctioned on a yield basis at 1:00 p.m. EST on Wednesday, February 9, 2011, and the 30-year bond will be auctioned on a yield basis at 1:00 p.m. EST on Thursday, February 10, 2011. All of these auctions will settle on Tuesday, February 15, 2011.
The balance of Treasury financing requirements will be met with the regular weekly bill auctions, the regular monthly nominal coupon security auctions, the February 30-year TIPS auction, the March 10-year TIPS reopening auction and the April 5-year TIPS auction.
Treasury may also issue cash management bills during the quarter.
Projected Financing Needs
In recent months Treasury coupon offering sizes have held steady following a series of reductions in the front-to-intermediate sectors of the nominal coupon curve, which reduced Treasury’s annualized borrowing capacity by $328 billion.
Treasury expects to keep coupon auction sizes stable in the coming months, despite a residual financing need created by the passage of recent tax legislation. Treasury plans to address this incremental borrowing need through increases in regular-bill auction sizes. Any changes to this financing strategy will be communicated in future quarterly refunding announcements.
Debt Subject to the Statutory Limit
On January 6, 2011, Secretary Geithner notified Congress that according to Treasury Department estimates, the statutory debt limit would be reached sometime between March 31, 2011 and May 16, 2011.
Incorporating the latest quarterly borrowing estimates, Treasury now expects to reach the debt limit sometime between April 5, 2011 and May 31, 2011. The modest change in these estimated dates reflects an upward revision to projected receipts and a projected downward revision to debt to be issued to government trust funds.
Treasury will provide an update on these dates in the first week of March. As Secretary Geithner’s January 6 letter indicated, these estimates are subject to change depending on the performance of the economy, government receipts, and other factors.
Establishment of a Minimum Coupon Interest Rate
Treasury plans to amend the Uniform Offering Circular (“auction rules”) by issuing a final rule by the end of March 2011, which will establish a minimum coupon interest rate of 1/8 of one percent for all new inflation-protected and nominal securities. Treasury is modifying the rule to avoid issuing a new security with a zero percent coupon.
Under the current methodology, coupons are set in 1/8 of one percent increments. In extremely low interest rate environments, the existing process could result in a new coupon security being issued with a zero percent coupon. This could negatively impact investors that seek semi-annual coupon payments. Additionally, this modification will avoid any confusion in the Treasury STRIPS market.
The next quarterly refunding announcement will take place on Wednesday, May 4, 2011.
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