Treasury to Sell $58 Billion in Notes

The U.S. Treasury will sell a record $58 billion in notes next week and plans to boost sales of five-year and 10-year securities beginning in August to help fund a swelling federal budget deficit.

In an announcement Wednesday, the Treasury said it will auction $22 billion in three-year notes May 6, $18 billion in five-year notes May 7 and $18 billion in 10-year notes May 8.

The size of the debt offering is the largest since the Treasury sold $44.5 billion in February 1996 and is almost twice the size of the $33 billion of securities issued in this quarter a year ago.

Sluggish economic growth and three years of falling stocks have depressed tax revenue even as the war in Iraq has lifted government spending. That has left the U.S. facing its first consecutive annual budget deficits since 1997, forcing the Treasury to borrow from financial markets to pay the government’s bills.

The budget deficit this year could be as high as $400 billion, many analysts estimate.

Despite the debt-sale announcement, yields on outstanding Treasury securities fell Wednesday as Federal Reserve Chairman Alan Greenspan gave a cautious assessment of the strength of the U.S. economy in remarks to Congress that some investors interpreted as a sign of a greater chance for another Fed interest rate cut.

The yield on the five-year Treasury note fell to 2.75% from Tuesday’s close of 2.86%, while the yield on the 10-year T-note fell to 3.84% from 3.93% on Tuesday. Both were the lowest since April 1.

In addition to borrowing much more next week, the Treasury will begin selling five-year notes every month beginning in August and will double the number of 10-year note sales each year to eight.

“While these changes have been made in response to larger financing needs, they will benefit Treasury by creating additional flexibility in meeting unexpected swings in borrowing needs,” said Brian Roseboro, assistant Treasury secretary for financial markets.

Next week’s sale of three-year notes will be the first since 1998. Last week the government sold a record-tying $27 billion of two-year notes.

On Monday the Treasury said it would borrow a net $79 billion from April through June, a record for the second quarter and the first time the government has been a net borrower over that period since 1995.