Halister News

(Bloomberg) -- Treasury bill supply may rise by at least $400b in 2018, “and perhaps by much more,” as the government addresses a larger financing gap and boosts its cash balance once the debt ceiling is resolved, Wrightson economist Lou Crandall says in note.

• Forecast assumes Treasury will gradually increase its coupon offerings during the year, which means “the bill sector would have to pick up the slack in the interim”
• TBAC recommended Treasury meet 25%-33% of its prospective funding gap through increased bill supply, which would imply $150b-$200b, assuming a $450b gap without a tax cut and $600b gap with a cut
• Boost to cash balance upon debt-ceiling resolution would add another $100b to bill issuance in 2018
• Committee’s recommendation “seems reasonable if applied on average to the cumulative financing gap for the next three or four years as a whole,” though next year Treasury is expected to meet a “much larger share of its incremental borrowing needs through bills”
• TBAC’s suggestion that Treasury extend issuance to 2-, 3-, 5-yr sectors indicates the “marginal benefits of further maturity extension” are smaller than in the “immediate aftermath of the financial crisis”
• Committee was “generally unenthusiastic” about the role of longer-term notes and bonds, though it doesn’t mean Treasury will be able to avoid increasing issuance in 10-, 30-yr tenors

To contact the reporter on this story: Alexandra Harris in New York at aharris48@bloomberg.net To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net Greg Chang