US Treasury’s tapering seen outpacing Fed, with $1tn in cuts

US Treasury’s tapering seen outpacing Fed, with $1tn in cuts

Bloomberg / Washington

The Federal Reserve won’t be the only one announcing a taper on Wednesday. The Treasury Department, for the first time in more than five years, will likely unveil a scaling down of its behemoth quarterly sale of longer-term securities.

In time, the Treasury’s reduction in issuance of coupon-bearing debt – notes and bonds with interest payments – will outweigh the Fed’s zeroing out of its quantitative-easing purchases of Treasuries.

It’s a dynamic that hasn’t captured sufficient attention from investors, according to Wells Fargo & Co, and could help limit increases in borrowing costs as the central bank withdraws stimulus.

Sales of regular coupon-bearing debt will be pared back by some $1tn by about the third quarter of 2022, according to a number of Wall Street banks. By comparison, Fed Chair Jerome Powell has said the central bank’s $80bn-a-month in Treasuries purchases will be completely terminated by mid-2022.

The reductions are expected to start with auctions at the so-called quarterly refunding next week, which is forecast to total less than the record $126bn of the past three episodes.

While the Treasury’s exact borrowing needs will depend in part on two longer-term fiscal packages that Congress aims to enact in coming