Treasury's Stunning Increase in Issuance

Henry Paulson is not following the sage counsel of T.S. Eliot and is instead going out with a bang rather than Eliot’s whimper.

The Treasury announced today that they will auction $30 billion 3 year notes on Wednesday. The increase in issuance here is stunning. The 3 year was reintroduced in November at $25 billion. In its previous reincarnation it was a quarterly issue.

The US government has a desperate need for cash and in their infinite wisdom the debt managers chose to place this bond on a monthly cycle. In the span of two months they have bumped the total from $25 billion to $30 billion. If we start with the November issue and make the poor assumption that they will not tweak this again, the Treasury will raise an incredible $353 billion in the 3 year sector in the year that ends October 31, 2009.

The Treasury also announced the re-opening of the 10 year note for a second time. Treasury issued $20 billion in November and $16 billion when they reopened it in December.

Prior to November, the 10 year auction occurred eight times each year. This is the first announcement of the expanded monthly cycle for that issue and they will sell $16 billion this time. That means that the taxpayers have issued $52 billion to the public of this mega issue.

Previously the Treasury had announced that it would sell $8 billion TIPS tomorrow.

I rarely wade into the bull pit, but to make the point, I would be remiss if I did not note the supply in that market.

Each Monday since time immemorial Treasury has issued three month bills and six month bills. Today is no different and they will raise in total $53 billion in those auctions.

I do not have the auction dates, but the Treasury will also sell $24 billion four week bills and $35 billion special 70 day bulls this week.

Sister Consolata taught me very well in grammar school (they taught grammar in the 1950s. We would diagram sentences.) and the sum of those numbers is $166 billion.

Against that background, I suggest that Hank Paulson is leaving a blazing trail of glory in his wake.

Comments

[herbert hoover:]

Against that background, I suggest that Hank Paulson is leaving a blazing trail of glory in his wake.


"Glory" ????? Hardly.
How about recklessness bordering on malfeasence?

Jan 05 12:42 PM

[The Realist:]

Seems like a lot but it won't even pay for 10% of our new stimulus package? How do we raise the rest?

Jan 05 02:30 PM

[Crocodilian:]

The appetite for Government backed securities seems endless, and the appetite for anything else, thin to non-existent; into that environment, we add massive supply of the only thing anyone seems to want, securities issued by or guaranteed by the Federal government. We've curiously arrived at the dreaded "crowding out" scenario, where we may see Government's financing needs absorb all available capital.

It seems that the Federal policy is thus working against itself . . . on the one hand, they want folks to invest in risky loans, properties, and equities-- on the other hand, its clear that there's an endless supply of risk free Government securities coming, so why take any risk?

Jan 06 01:40 AM

[leh:]

Foreign banks have been dumping Fannie and Freddie paper for months now to the point where the Fed has had to step in and be the buyer of last resort to keep the mortgage markets liquid. Between that, TARP, Iraq, Afghanistan and Obama's new stimulus package, the accumulative costs are staggering.

Jan 06 11:39 AM