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2nd UPDATE: US Treasury To Auction $72B In New Debt Next Week

By Jeffrey Sparshott and Jeff Bater
Of DOW JONES NEWSWIRES


WASHINGTON (Dow Jones)--The U.S. Treasury Department said Wednesday it would issue $72 billion in new debt next week, auctions that will take the federal government right up to its debt limit. The Treasury said it remains confident that Congress will raise the limit, though it cautioned that auction schedules could eventually be disrupted if lawmakers don't act before Aug. 2. "We're not seeing a reaction in the market to date from these (debt ceiling) issues but we are very vigilant. We want to make sure that the market is as confident as we are that Congress will act," Mary Miller, assistant Treasury secretary for financial markets, told reporters.

Treasury Secretary Timothy Geithner told lawmakers this week that the U.S. would hit the debt ceiling by May 16 and could default as soon as Aug. 2. To hold off the day of reckoning, the Treasury, in a first step Friday, will stop issuing state and local government series securities, also known as SLGS. That action could make it harder for states and cities to issue debt.

Next week's auctions hold steady the amount of long-term debt issued by the Treasury in its quarterly auction, even as tax receipts climb. "There is a high level of uncertainty right now about our borrowing approach here over the next few months, and we thought it was probably best to wait until August, when we have a little more clarity on the pace of economic recovery, the pace of tax collections," Miller said.

Treasury's Borrowing Advisory Committee<how quaint!> meets quarterly, with the next session in August. "So we decided to leave things unchanged this quarter, but I expect that we will revisit that again at the next meeting," she added. Treasury on average borrows $125 billion a month, Miller said. It wouldn't be able to borrow new cash after Aug. 2 unless the debt ceiling is raised. The Treasury Wednesday said it will sell $32 billion in three-year notes Tuesday, $24 billion in 10-year notes May 11, and $16 billion in 30-year bonds May 12. All of the auctions will settle May 16, the day that Treasury expects to reach the $14.294 trillion debt ceiling. The Treasury also sold $72 billion in debt in the last quarterly auctions, held in early February.

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The Treasury has been steadily increasing the average maturity of the debt it issues, with the average now at 61 months compared with a historical average of 58.1 months. Next week's auctions of long-term debt will raise all new cash, the Treasury said. On Monday, the Treasury estimated it would borrow $142 billion from April through June. For the next quarter, July through September, it expects to borrow $405 billion.

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"I think the days of just passing it on its own, or if it's just tinkering around the edges, I don't think that's going to fly," Rep. Jim Jordan (R., Ohio), chairman of the conservative Republican Study Committee, said Tuesday in an interview. "It's got to be real, substantive, game-changing changes in the law in order for conservatives and Republicans to support increasing the borrowing authority."