Treasury Advisory Committee Urges Prompt Raising of Debt Limit--Update

By Kate Davidson Features Dow Jones Newswires

The Treasury Department said Wednesday it continues to expect to be able to fund the government through the end of September, but said it is critical Congress act "promptly" to raise the borrowing limit.

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A key Treasury advisory committee also stressed the "urgency and importance" of raising the debt limit in a statement released Wednesday.

The committee meets quarterly, in advance of the Treasury's quarterly refunding statement, when it announces its plans for financing the U.S. debt.

Treasury Secretary Steven Mnuchin last week urged Congress to raise the federal borrowing limit by Sept. 29, and said he would continue to suspend the issuance of new Treasury debt through that date.

Treasury has been employing cash-conservation measures since mid-March, when government debt hit the statutory limit at nearly $20 trillion, and had imposed a "debt issuance suspension period" that expired Friday.

Treasury also said Wednesday it would likely increase the size of its auctions of Treasury bills and nominal coupons in response to increased borrowing needs once the Federal Reserve begins to shrink its massive portfolio. The Treasury Borrowing Advisory Committee also said Treasury should consider increasing auction sizes "across all tenors" while gradually increasing Treasury bills as a share of overall debt.The TBAC also warned of the potential spillovers and risks of the Fed unwinding its balance sheet.

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"In this environment, a tail risk stress scenario is that a small increase in yields could possibly lead to large changes in risk premiums, " the committee said. "In an adverse scenario, there's the possibility of a meaningful, but not systemically risky, decline in both credit and equities."

Write to Kate Davidson at kate.davidson@wsj.com

WASHINGTON -- The Treasury Department said Wednesday it continues to expect to be able to fund the government through the end of September, but said it is critical Congress act "promptly" to raise the borrowing limit.

A key Treasury advisory committee also stressed in a statement released Wednesday the "urgency and importance" of raising the debt limit.

The committee meets quarterly, in advance of the Treasury's quarterly refunding statement, when it announces its plans for financing the U.S. debt.

Treasury Secretary Steven Mnuchin last week urged Congress to raise the federal borrowing limit by Sept. 29, and said he would continue to suspend the issuance of new Treasury debt through that date.

The Treasury has been employing cash-conservation measures since mid-March, when government debt hit the statutory limit at nearly $20 trillion, and had imposed a "debt issuance suspension period" that expired Friday.

The Treasury also said Wednesday it would likely increase the size of its auctions of Treasury bills and nominal coupons in response to increased borrowing needs once the Federal Reserve begins to shrink its massive portfolio. The Treasury Borrowing Advisory Committee also said the Treasury Department should consider increasing auction sizes "across all tenors" while gradually increasing Treasury bills as a share of overall debt. The TBAC also warned of the potential spillovers and risks of the Fed unwinding its balance sheet.

"In this environment, a tail risk stress scenario is that a small increase in yields could possibly lead to large changes in risk premiums, " the committee said. "In an adverse scenario, there's the possibility of a meaningful, but not systemically risky, decline in both credit and equities."

The Treasury said it would provide further guidance about changes to future auction sizes "if and when" the timing of the Fed's balance sheet reduction plan becomes available.

The TBAC said Treasury should consider increasing coupon debt as soon as the next round of quarterly refunding in November, and as late as the first quarter of 2018. "By legging into increased coupon issuance relatively soon and in a predictable manner, Treasury maintains flexibility to respond to fiscal and other developments without causing market stress," the committee said.

Write to Kate Davidson at kate.davidson@wsj.com

(END) Dow Jones Newswires

August 02, 2017 08:55 ET (12:55 GMT)