Filling US Fiscal Deficit... Record-High Treasury Auction

Last Year Federal Government Deficit Reached 2,268 Trillion Won
Next Week Sale of 16.44745 Trillion Won Scheduled
New Borrowing of 2.12122 Trillion Won, 14 Trillion Won Repayment
Wall Street "Positive That Bond Issuance Will Not Increase Further"

The U.S. Treasury Department plans to conduct the largest-ever Treasury auction over the next three months to cover the surging federal budget deficit, according to major foreign media outlets including Bloomberg on the 31st of last month (local time).

The Treasury announced that it will sell $121 billion (approximately 164.4745 trillion KRW) worth of bonds in the upcoming quarterly refunding auctions targeting 3-year, 10-year, and 30-year maturities next week. Through this, it will raise $15.9 billion (approximately 21.2122 trillion KRW) in new funds and repay $105.1 billion (approximately 140.0668 trillion KRW) maturing on February 15. Analysts stated that the increase in Treasury auction size meets market expectations.

[Image source=Reuters Yonhap News]

It was reported that the auctions for 2-year and 5-year bonds will reach record sizes. In particular, the 5-year auction scheduled for April will amount to $70 billion (approximately 93.387 trillion KRW), marking the largest-ever size for bonds with maturities over two years.

To meet borrowing demand, the auction sizes for 2-year and 5-year Treasuries will increase by $3 billion (approximately 4.0023 trillion KRW) each month, maintaining the same pace as the previous quarter. Auctions for 10-year and 30-year bonds are expected to increase by $2 billion (approximately 2.6682 trillion KRW) and $1 billion (approximately 1.3339 trillion KRW), respectively.

The significant expansion of bond auction sizes is due to the sharp rise in the federal budget deficit. Government spending is slowing while tax revenues are not increasing, leading the U.S. government to increase borrowing over the past several quarters. Last year, the federal government deficit reached $1.7 trillion (approximately 2,268 trillion KRW).

However, the Treasury stated that this will be the last time long-term bond auctions surge. The Treasury said, "Based on currently expected borrowing needs, we do not anticipate the need to further increase auction sizes beyond this announcement for at least the next few quarters."

Mike Riedel, portfolio manager of the Allianz Global Investors bond fund, said, "As the U.S. presidential election approaches, supply dynamics will increasingly catch investors' radar," adding, "Especially if former President Donald Trump is elected, deficits will increase due to plans to lower the corporate tax rate from 21% to 15%."

Wall Street positively evaluated the Treasury's decision not to further increase bond issuance. Padraic Garvey, head of U.S. research at ING, said, "The good news is the issuance volume is expected to have peaked overall," and added, "While bond issuance remains a concern, the fact that it will not increase further is hopeful."

This content was produced with the assistance of AI translation services.