Money markets us bill supply may rise on lower tax receipts← Homepage
* Weaker tax receipts seen raising federal borrowing* Meager income growth, capital gains seen cutting tax revenues* T-bill, repo rates steady after earlier declineBy Richard LeongNEW YORK, April 20 The U.S. government might ramp sales of Treasury bills later this year if tax receipts continue to run below last year's levels and federal spending holds steady at current levels. An increase in T-bill supply should exert upward pressure on short-term borrowing costs for Washington, banks and companies, analysts said on Friday."Bill issuance should pick up in the second half of this year," said Priya Misra, head of U.S. rates strategy at Bank of America Merrill Lynch in New York. The amount of any increase in T-bill supply is unclear since it hinges on the Treasury Department's deciding on its offering of longer-dated coupon securities for the rest of the year and whether it will introduce a two-year floating-rate note.
T-bill rates stabilized on Friday after they had fallen earlier this week in anticipation of a shrinkage in supply with the repayment of more than $40 billion in bills on Thursday."We have seen steady buying all week," said Andrew Shulman, a bill trader at Wunderlich Securities in New York. Bids for ultra short-dated U.S. government securities persisted as worries lingered over the euro zone debt crisis even after Group of 20 nations on Friday were prepared to raise at least $400 billion in crisis funds for the International Monetary Fund, Shulman said.
In the $1.6 trillion tri-party repurchase agreement market, the overnight rate on loans for banks and Wall Street firms was last quoted at 0.13 percent mid-market, steady from late Thursday. In March, the Treasury began paring its weekly issuance during its annual period of personal income tax collection. However, tax receipts have been running below year-ago levels. There is a chance they could catch up in the coming days, "but indications are not very encouraging," Misra said. On a cumulative basis, non-withheld tax receipts through Wednesday totaled $48 billion, down from $58 billion during the same period last year, according to Misra.
She forecast this would reduce tax revenues by $25 billion this year compared with 2011."Even with tax issuance, the government still needs to compensate for last year's tax cut extensions," she said. Analysts blamed the lower tax receipts on sluggish income growth and meager capital gains in the stock market last year. While it might be some time before the Treasury decides on enlarging its weekly T-bill auctions, the amount of T-bills available in the open market will be buoyed by the Federal Reserve's $400 billion "Operation Twist" program, analysts said. The Fed's program involves selling its short-term Treasuries holdings and buying longer-dated debt with the goal to hold down mortgage rates and other long-term borrowing costs. Operation Twist is scheduled to end in June. On Monday, the Treasury will sell $30 billion in three-month bills and $28 billion in six-month bills .