WASHINGTON – The growing federal budget deficit may spur the U.S. Treasury to increase sales of bills, bonds and notes by more than 50 percent compared with last year, to $220 billion in the fiscal year that began this month, underwriter UBS Securities LLC now estimates, according to Bloomberg News.
“Unless the economy turns on a dime and starts to show strength again,” William O’Donnell, head of U.S. government bond strategy at Zurich-based UBS AG’s securities unit in Stamford, Conn., told Bloomberg News, “we’re going to be looking at increased Treasury issuance, beginning with bills later this year and spreading out across all Treasuries beginning in the first quarter.”
Such an increase in net sales – the first since 2004 – would jeopardize the biggest bond rally in five years, analysts said.
Less than six months ago, Treasury officials had credited a shrinking federal deficit with allowing them to eliminate sales of three-year notes. But in fiscal 2007, which ended last month, the federal deficit grew 12 percent to $162.8 billion as corporate tax revenue shrank for the first time since 2003. And in fiscal 2008, UBS – one of the 21 primary dealers that underwrite Treasury auctions – predicts the deficit will grow 38 percent to $225 billion.
