President Trump Drives Debt Sales to Near-Recession Levels as Economy Booms

President Trump Drives Debt Sales to Near-Recession Levels as Economy Booms

President Trump Drives Debt Sales to Near-Recession Levels as Economy Booms

US President Donald Trump is boosting long-term US debt sales to the highest since Y 2010, matching the pace when the country was digging itself out of the worst recession since World War II, even as the economy is booming.

To cope with the fiscal expansion driven in part by his tax cuts and spending measures approved by Congress, the US Treasury Department said Wednesday that it will raise long-term debt issuance to $78-B this Quarter. It is also launching a new 2-month T-Bill and will lean more heavily on maturities out to years.

President Trump’s policies are further weighing on the fiscal outlook that he inherited from his predecessor, Barack Hussein Obama. Treasury has also highlighted the need to sell debt as the Fed allows maturing securities on its $4.3-T balance sheet to roll off gradually.

In its Quarterly refunding announcement Wednesday, Treasury said it boosted the auction sizes of coupon-bearing and floating-rate debt from $73-B the prior Quarter. It was the 3rd consecutive Quarterly increase, as President Trump’s fiscal policies widen the nation’s budget deficit.

The Treasury will sell $34-B in 3-year T-Notes on 7  August compared with $33-B last month and $31-B in May.

The government increased to $26-B the sale of 10-yr T-Notes to be auctioned on 8 August from $25-B last Quarter, and the 30-yr T-Bonds to be sold on 9 August to $18-B from $17-B in May, Treasury said. The sales will raise new cash of $39.8-B.

The benchmark 10-yr Treasury yield rose above 3% on 1 August for the 1st time since 13 June in the wake of the refunding announcement. The yield curve from 5 years to 30 years steepened, with the spread rising to over 26 bpts earlier Wednesday, before retreating to about 25 bpts.

Yield Check as of 2 August

  • 2-yr: -3 bpts to 2.65%
  • 5-yr: -2 bpts to 2.85%
  • 10-yr: -2 bpts to 2.99%
  • 30-yr: -1 bpt to 3.12%

The deficit totaled $607-B through the 1st 3 Q’s of the FY  that ends 30 September, compared with $523-B from the same frame a year earlier. The Congressional Budget Office in late June predicted total government spending would exceed revenue by $1-T in Y 2020.

US Treasury Secretary Steven Mnuchin has said that a stronger economy will boost government revenue and help shrink the budget deficit. The US economy is “well on the path” for four or five years of sustained annual growth of 3 percent, he said on Sunday.

Treasury officials Wednesday said that flattening of the yield curve with the gap between 2 and 10-yr Treasury yields touching last month its narrowest since Y 2007 was not dictating their choices. Investors and some Fed officials have expressed concern that the curve may invert, which has historically been a harbinger of recession.

“Being the US government, being one of the largest sovereign debt markets in the world, obviously we need to continue to issue debt and meet our financing needs no matter what the shape of the curve is — whether the curve is steep or flat, or interest rates are rising or falling,” Deputy Assistant Treasury Secretary Clay Berry told reporters in Washington. “We really do not have the flexibility or the ability to time the market, if you will, since we are kind of a consistent, large issuer over time, no matter what the interest rate environment.”

Have a terrific weekend

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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