U.S. Plans to Borrow $188 Billion in Quarter

The U.S. government plans to borrow $188 billion in the current quarter, the most ever for a single quarter, as the Treasury sells 30-year bonds for the first time since 2001 to meet demand for longer-term debt.

The borrowing plan is $17 billion more than the previous estimate, the Treasury said Monday. The government plans to pay down a net $30 billion from April through June, the Treasury said.

The heavy debt calendar this quarter comes as Treasury bond yields have been rising again. Shorter-term yields, such as on the two-year T-note, have moved up in advance of what’s expected to be another increase in the Federal Reserve’s benchmark short-term rate today.

Longer-term yields also have climbed over the last two weeks. The yield on the government’s current longest-term issue, a 25-year bond, was 4.70% on Monday, up from 4.50% on Jan. 17.

Record borrowing this quarter “is obviously negative for Treasuries,” said Joseph Shatz, a bond strategist at Merrill Lynch & Co. in New York. “We are going to see more supply. The extra supply is going to put upward pressure on yields.”

Rising costs for healthcare, along with hurricane reconstruction and the war in Iraq, will push the federal budget deficit higher this year, government economists said last week. The return of the 30-year bond, which for a quarter-century was the world’s safest long-term investment, gives the U.S. another way to sell debt in the world’s most active bond market.

The Treasury will disclose Wednesday the amount of three-year, 10-year and 30-year securities that it intends to sell in February.

The government is expected to auction about $15 billion in 30-year bonds Feb. 9, according to analysts. They also forecast about $19.5 billion in three-year notes and $13.75 billion in 10-year notes to be sold that week.

The government is selling 30-year bonds in part to meet demand from pension funds and insurance companies for longer-term debt. The bond is part of Treasury’s commitment to “prudent debt management” and to diversify the government’s debt portfolio, Treasury Secretary John W. Snow said last year.

The Treasury said it expected to reach the government’s legal debt limit of $8.184 trillion, as set by Congress, in mid-February. That means the Treasury may not be able to issue all the debt it plans this quarter unless Congress raises the limit.

The budget deficit narrowed to $318.6 billion in the fiscal year ended Sept. 30 from the previous year’s record $412.8 billion.

But the Congressional Budget Office last week predicted the deficit for fiscal 2006 will reach as much as $360 billion because of hurricane spending and the costs of the wars in Iraq and Afghanistan. That forecast is smaller than the $400 billion the Bush administration estimated Jan. 12.