December 5, 2023


The US Treasury is facing significant challenges as it grapples with a rapidly deteriorating budget deficit and soaring interest rates. To address this situation, the Treasury is set to begin a ramp-up in the issuance of longer-dated securities starting this week, a move that is likely to continue into the next year. The increase in public borrowing needs can be attributed, in part, to Federal Reserve rate hikes and inflation, which have widened the budget deficit. With servicing costs for government debt reaching record highs, the Treasury is taking measures to ensure adequate funding over the coming years.

Rising Debt and Interest Rates:

The Treasury will boost its quarterly refunding of longer-term Treasuries to $102 billion, up from $96 billion, the highest level since early 2021. While this is below the record levels seen during the Covid-19 crisis, it is still well above pre-pandemic levels. Moreover, regular auction sizes for securities across the yield curve are expected to be increased, with some exceptions or smaller bumps for less in-demand notes. The Treasury’s debt managers are also looking to update a program to buy back older Treasuries, which aims to bolster liquidity and smooth out volatility in the Treasuries market.

Impact of Federal Reserve Rate Hikes:

Federal Reserve rate hikes have played a significant role in driving up yields on government debt, making it more costly for the Treasury to service its debt. Additionally, the Federal Reserve is shrinking its holdings of Treasuries, which increases the obligation for the government to sell more to other buyers. This combination of factors is raising concerns about potential volatility swings during the government’s securities auctions.

Outlook and Projections:

Market experts and dealers project a series of refunding auctions with varying sizes for different maturities. Sales of coupon-bearing debt, such as interest-paying notes, are expected to increase not only in August but also in the November and February debt-management policy announcements. Some dealers predict that smaller increases will be seen for 7- and 20-year Treasuries, which have experienced weak demand in the past.

The Burgeoning Funding Needs:

The fiscal deficit has reached $1.39 trillion in the first nine months of the current fiscal year, a staggering 170% increase compared to the same period the previous year. With the deficit expected to grow over the next decade, the Treasury is focused on securing adequate funding for the coming years.


The US Treasury is taking necessary steps to manage its surging debt and cope with soaring interest rates. The increase in public borrowing needs is a result of multiple factors, including Federal Reserve rate hikes, inflation, and the Fed’s shrinking holdings of Treasuries. By ramping up the issuance of longer-dated securities and implementing buyback programs, the Treasury aims to ensure adequate funding and maintain stability in the Treasuries market amid potential volatility.

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