U.S. to Sell $27 Billion in Long-Term Debt Next Week

By Rebecca Christie and John Brinsley

July 30 (Bloomberg) -- The U.S. Treasury said it plans to increase sales of long-term government debt this quarter and may add auctions of notes and bonds to cope with a widening budget deficit.

The Treasury plans to auction $17 billion in 10-year notes Aug. 6 and $10 billion in 29 3/4-year bonds Aug. 7, the department said today in Washington. The total was higher than analysts forecast and exceeded the $21 billion in notes and bonds sold in May.

The Treasury said it is considering additional debt sales, including a second reopening of the 10-year note and moving to quarterly new issues of 30-year bonds. A budget shortfall that the Bush administration this week predicted will swell to a record next year is increasing the need to borrow.

``If budget deficits remain large past next year, we'll see more additions to the auction calendar,'' said Louis Crandall, chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm. ``They've already done so much borrowing in short and intermediate maturities that it makes sense at this point to shift their sights to a longer-dated part of the curve.''

In a Bloomberg News survey of seven analysts, the median estimate predicted $16 billion in 10-year-note sales and $10 billion in bond sales.

Boosting Auction Sizes

Three months ago, the Treasury's quarterly sales of 10-year notes totaled $15 billion and bond auctions totaled $6 billion. The department also said in April that it would resume monthly sales of 52-week bills after suspending them in 2001.

The Treasury today opted to hold off on adding to its auction calendar. Some analysts said the department might consider expanding its 10-year note sales and perhaps bring back the three-year note, last sold in May 2007.

``Over the course of the fiscal year, changes in economic conditions, financial markets and fiscal policy as well as nonmarketable debt issuance have caused an increase in Treasury's marketable borrowing needs,'' the Treasury said in a statement.

After improving for three straight years, the U.S. budget is deteriorating as a slowing economy hurts tax revenue and spending increases. The Bush administration, which entered office in 2001 with a $127 billion budget surplus, earlier today predicted the next president faces a record deficit totaling $482 billion in 2009.

Short-Term Debt

The department also plans to sell cash management bills ``on a monthly basis during the quarter.''

``Treasury will continue to monitor projected financing needs and make adjustments as necessary, including, but not limited to, considering a second reopening of the 10-year note in the month following the first reopening and moving to quarterly new issue 30-year bond auctions,'' Treasury Assistant Secretary Anthony Ryan said in the statement.

A decision about the additional issuance will be made at the November refunding, Ryan said.

The Treasury predicted two days ago that it will need to borrow $171 billion in debt this quarter, $59 billion more than its previous estimate. That total, if realized, would be the second-largest ever after a record $244 billion was borrowed in the first three months of this year.

The government sells debt to finance the excess of spending over revenue. The Treasury also sells shorter-term debt on a monthly and weekly basis to manage the government's finances.

Investors' Panel

The Treasury's borrowing advisory committee of bond dealers and fund managers said in their July 29 report that the economic slowdown, and the department's need for additional funds to support the Federal Deposit Insurance Corp. due to the failure of several U.S. banks, ``has created a marked deterioration in the U.S. budget outlook.''

Given those factors and the likelihood of further deterioration in the budget, ``the Treasury should increase the size and frequency of its current issuance calendar and consider adding additional issues over the near and intermediate term,'' the advisory panel said.

The Treasury has room to make ``modest'' increases in two- and five-year notes, and should the fiscal situation further weaken, could reintroduce three-year notes or other similar securities, the panel said.

To contact the reporter on this story: Rebecca Christie in Washington at rchristie4@bloomberg.netJohn Brinsley in Washington at jbrinsley@bloomberg.net