Treasury Supply
January 5th, 2009 12:39 pm | by John Jansen |Henry Paulson is not following the sage counsel of TS 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 the 3 year sector in the year that ends October 31 2009.
The Treasury also announced the reopening 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 bill 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.
8 Responses to “Treasury Supply”
By Danny on Jan 5, 2009 | Reply
Hi John!
Isn’t the writing on the wall? doesn’t it smells to you like INFLATION?
By Doug P on Jan 5, 2009 | Reply
We can see by this avalanche of debt issuance that the Treasury is not printing money (or at least, not enough to cover all the increased spending and obligations).
Hyper-inflation? Not yet.
Simple supply and demand here. Gargantuan amounts of new supply hitting the market, we’ll see if the demand rises to meet it or not.
By Jesse on Jan 5, 2009 | Reply
I suspect they are hitting the three year because this is the duration area favored by many foreign central banks (China Japan Saudi Arabia) who I would imagine are the prime target customers.
By Joe on Jan 5, 2009 | Reply
Well, some of you may think the recession is going to last long enough that those 3 yr notes are fairly valued. However, $16b/month in 10yr notes at 2.5%? Get real. Do the buyers think the US will have 1% CPI for ten years? No, this is a bubble.
Did ya’ll see today’s Barrons:
http://seekingalpha.com/article/113111-stay-away-from-treasuries-barron-s?source=article_lb_themes
On a side note: why is John blaming this on Hank Paulson? The situation is what it is. The govt. needs to raise this money. Would a different Sec. of Treas. have done things differently?
By Doug P on Jan 5, 2009 | Reply
Are you kidding!? Paulson was a primary architect of the Bear Stearns/AIG/Citigroup bailouts and the TARP.
That’s over a trillion dollars in spending that he had his hands in. John’s blame is well placed.
By Randy on Jan 5, 2009 | Reply
What would Obama and Tim Geithner do???!! how do you think they’ll finance $750B + a $300B hole in the budget? please
By Doug P on Jan 5, 2009 | Reply
Obama and Geithner have to fill the hole, but they sure didn’t dig it.
By Joe on Jan 5, 2009 | Reply
“Obama and Geithner have to fill the hole, but they sure didn’t dig it.”
{History is written by the victors: Ignoring the fact that Sen. Obama endlessly expounded the needs for the TARP on the campaign trail.}
Randy’s numbers are about what I’m reading as well. Obama is proposing another $1 TRILLION in new digging. On top of the $350 of unspent TARP he’s inheriting. That’s his hole, not Paulson’s.
Doug, it seems as if you feel it was wrong to save Bear Stearns/AIG/Citigroup. After seeing the wreckage caused by the Lehman Bros. bankruptcy, do you feel Mr. Paulson was wrong to avert more of that? Remember, Mr. Geithner disagreed with Mr. Paulson in that Mr. Geithner wanted to save even Lehman Bros.
My original question remains: Would a different Sec. of Treas. have done things differently, i.e.- NOT saved Bear/AIG/Citi? Or was there a method to save them w/o any cost to the taxpayer?
{A political aside: I fully expect Obama, like all new presidents, to blame everything on the previous administration, but he can only do that (plausibly) for so long. Certainly not 4 years.}