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 Treasury Announces Postponement of 2-Year Auction


10/22/2015
WASHINGTON – The U.S. Treasury Department today announced that it will postpone the 2‑year note auction originally scheduled for Tuesday, October 27, 2015.  Due to debt ceiling constraints, there is a risk that Treasury would not be able to settle the 2-year note on Monday, November 2, 2015.  The 5-year note auction, scheduled to take place on October 28, 2015 and the 7-year note auction, scheduled to take place on October 29, 2015, will proceed as scheduled.  Both the 5-year note and 7-year note will settle on Monday November 2, 2015. The 13-week, 26-week and 2-year floating rate auctions will also be announced today at 11:00 AM ET.
 
Treasury has limited borrowing authority available, and cash and nonmarketable debt forecasts are extremely volatile.  On October 15, 2015, Treasury Secretary Lew informed Congress that Treasury estimates that extraordinary measures will be exhausted no later than Tuesday, November 3, 2015.  At that time, Treasury expects to have less than $30 billion to meet all of the nation's commitments.
 
Treasury believes that postponing the auction for the 2-year note poses less risk for market functioning than postponing the 5-year or 7-year note offering.  Once the debt limit impasse is resolved, Treasury will announce a rescheduling of the 2-year note auction.
 
The current debt limit impasse is also now adversely affecting the operation of government financing, increasing federal government borrowing costs, reducing the Treasury bill supply, and increasing the operational risk associated with holding a lower cash balance.  In particular:
 
·        Rates on Treasury bills with maturity dates in the month of November 2015 have increased relative to the rates on Treasury bills maturing in October and December of 2015. 
 
·        Over the last several months, Treasury has had to reduce the amount of bills in concert with declines in available extraordinary measures.  Treasury has previously stated that increasing the level of Treasury bills outstanding would help achieve our objective of lowest cost of funding over time and also enhance market functioning and liquidity.
 
·        In order to stay below the statutory debt ceiling, Treasury has reduced debt issuance and Treasury’s cash balance has fallen well below a minimum prudent level of $150 billion, an amount generally sufficient to cover one week of outflows.  Maintaining the minimum cash balance Treasury previously announced reduces operational risk and  helps protect against potential market interruptions, which in the past have been caused by events such as Hurricane Sandy and the 9/11 terrorist attacks.  It does not increase the debt limit or alter the time we can continue to pay the nation's bills. 
 
The Treasury market is critical to efficient funding of the Federal government.  Disruptions to this market can be costly to the U.S Government and ultimately the American taxpayers.  Treasury respectfully urges Congress to increase the debt ceiling as soon as possible.  The creditworthiness of the United States is not a bargaining chip, and Congress should address this matter without controversy or brinksmanship.
 
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