By Joe Plocek

WASHINGTON (MNI) – The U.S. Treasury’s November refunding should be routine
as officials, aware of the national elections a few days away, appear unwilling
to make waves in financial markets.

Mid-quarter refunding operations recently have consisted of new 3-, 10-,
and 30-year securities, recently totaling $72 billion, for auction Tuesday
through Thursday of the week after the announcement. A package of this size
would raise $8.9 billion new cash in November against about $20 billion in
coupon interest due. Thus many analysts also look for a good sized Cash
Management Bill to be announced, perhaps with a December or April maturity.

MNI understands that the Treasury’s cash balance remains above target, but
that given the possible problems with the fiscal cliff and future financing,
reducing the amounts of Treasury issues is not being considered. Treasury cash
totaled $66.75 billion on Oct. 22, the latest date available. Treasury had
estimated this number to be $40 billion at end-December.

Indeed, the Treasury’s Borrowing Advisory Committee was talking about
increasing issuance in light of Fed maturity extensions soaking up supply. The
Treasury’s early estimate for Q4 borrowing was $316 billion, and recent
documents show that 50% of outstanding debt already is maturing in 3-years or
more.

The issuance of a Floating Rate Note and introducing negative interest
rates at Treasury auctions are still outstanding policy issues for the Treasury.
But the timing of any announcements might be put off into the future. Treasury
said in July that these programs were still “under consideration.”

The Treasury appears to remain concerned about the effects of high
financing rates, FDIC insurance changes, and the fiscal cliff on bills and other
short instruments. In July Treasury asked dealers about “recent elevated levels
of repo rates relative to other comparable short-term rates” and the October
dealer questions included a more oblique reference to the effects of upcoming
“policy and regulatory developments” on short financing.

MNI understands that with the Fed’s portfolio having redeemed all its
T-bill holdings, the Treasury considers itself the primary safeguard for this
market.

Treasury’s dealer meetings in New York begin Thursday. The refunding
announcement is due at 9 a.m. ET on Wednesday, October 31.

** MNI Washington Bureau: 202-371-2121 **

–email: jplocek@mni-news.com

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