By Brai Odion-Esene
WASHINGTON (MNI) – The ongoing sovereign debt crisis in the Europe
has not limited the appetite of investors for U.S. Treasury securities,
the Department’s chief domestic finance official said Wednesday.
“I look at our auction data very carefully and I think we’ve seen
very strong interest in Treasury auctions,” Mary Miller, the Assistant
Secretary for Financial Markets, said, “and the performance has been
In comments at a press conference following the Treasury’s
announcement of its quarterly refunding needs, Miller noted that members
of the Treasury Borrowing Advisory Committee made the argument that the
most active sovereign credit default swap contracts reference Western
By contrast, net notional outstanding in U.S. sovereign CDS amount
to less than 0.03% of U.S. debt held by the public.
“I think in general there is a significant demand for Treasuries
given that it is obviously the most liquid fixed income security in the
world,” added Matthew Rutherford, Deputy Assistant Secretary for Federal
Finance. “As a result I continue to see strong demand.”
The Treasury Wednesday morning announced it is offering $78 billion
of Treasury securities to refund approximately $30.9 billion of
privately held securities maturing on May 15, 2010. This will raise
approximately $47.1 billion.
The refunding package in total is $3 billion lower than the
offerings announced in the February refunding, Miller noted.
The adjustment in the government’s borrowing levels was driven in
part by improvements in the economy that in turn boosted incoming tax
receipts, she added. “We’ve seen some improvement in corporate tax
collections and withheld taxes.”
Reducing the Treasury’s borrowing levels “is an important step on
the road towards a more normalized period of financing,” she said. “The
magnitude of offering size reductions will depend of course on the pace
and extent of the economic recovery from here.”
She went on to stress the U.S. is coming out of a very deep
recession and needs to move very gradually.
Wednesday’s announcement is the first time the Treasury has cut any
coupon auction size since the May refunding in 2007.
Miller said the decline in auction sizes will be “gradual,” adding
the Department retains the “flexibility” to cut borrowing across the
nominal coupon curve. The largest share of the cuts will likely be in
the front to intermediate sectors of the curve.
“This is a reflection of the fact that these offering sizes are
relatively high compared to the long end of the curve,” Miller said.
While trimming its nominal coupon offerings, the Treasury continues
to make progress on increasing its Treasury Inflation Protected
Securities issuance, she continued.
The Treasury added another re-opening to the 10-year TIPS
offerings, making it six 10-year TIPS auctions per year.
“We believe that more frequent TIPS auctions should help improve
liquidity in the product,” Miller said, adding there has been an
interest in the market for a deeper, more liquid market in TIPS.
She said any further changes to the TIPS program will be made
following close consultation with the Treasury’s investors.
** Market News International Washington Bureau: 202-371-2121 **