U.S. Treasury Set to Borrow $1 Trillion for a Second Year to Finance the Deficit
The U.S. Treasury Department is set to maintain elevated sales of long-term debt to finance the government’s widening budget deficit, with new issuance projected to top $1 trillion for a second-straight year. Many strategists at primary-dealer firms predict that this Wednesday’s quarterly refunding announcement will see the Treasury maintain note and bond sales at the record high levels they have boosted them to in recent months. The total amount of 3-, 10- and 30-year securities to be offered at next week’s refunding auctions is seen by most at $84 billion. While that’s $1 billion more than the total for these maturities three months ago, that’s only because the size of the three-year sale was already nudged higher in December. A heightened supply of Treasury securities follows tax cuts and government spending increases implemented under the current administration. That’s darkening a fiscal outlook already made worrisome by rising entitlement-program expenses and higher costs to service America’s nearly $16 trillion in debt. The Federal Reserve’s balance-sheet runoff is also adding to supply, forcing Treasury Secretary Steven Mnuchin to tap the public for more funding. “We’ve seen deficits continue to blow out,” said Brian Edmonds, head of interest-rates trading at Cantor Fitzgerald in New York. “We are going to see more and more supply.” Cantor, along with dealers including Citigroup Inc., TD Securities, Deutsche Bank AG and Wells Fargo Securities, sees the Treasury keeping auction sizes unchanged for nominal coupon-bearing debt.
ECB Can Sound More Confident in Economy by Cutting Its Forecasts
The European Central Bank’s pessimism over its economic outlook might not last long even if the euro area fails to pick up speed — instead it’ll just revise the projections to reflect the heightened risks. Governing Council members Francois Villeroy de Galhau and Vitas Vasiliauskas said on Friday that policy makers expect to cut their 2019 growth prediction in March when the quarterly forecasts are updated. Unexpectedly weak economic data since the December projections forced a change in the ECB’s language when policy makers met on Thursday, with President Mario Draghi saying the risks to the growth outlook “have moved to the downside.” Downgrading the forecasts in March could allow the ECB to say that the risks to the — revised — projections are again broadly balanced. The language matters to investors because it can drive expectations of when the central bank is likely to tighten policy. The euro initially fell when Draghi spoke on Thursday, and market pricing suggests the institution won’t be able to raise interest rates until at least next year. Policy makers had an intense debate over how to assess and describe the stumbling blocs facing the euro-area economy, according to central-bank officials familiar with the matter. The Governing Council made a deliberate choice to steer clear of a previously used phrase that the balance of risks was “tilted to the downside,” the people said, asking not to be named because the meeting was private.
Pakistan to Tap Overseas Nationals for Funds to Revive Economy
Pakistan will raise $500 million in March through a fund aimed at its nationals living overseas, as South Asia’s second-biggest economy seeks investment after averting a balance-of-payment crisis. Pakistani citizens living abroad will be asked to invest in the fund managed by the Board of Investment and the central bank, Haroon Sharif, the chairman of the state-run agency, said in an interview in Islamabad. Prime Minister Imran Khan’s administration will also sell a so-called diaspora bond in January, finance ministry spokesman Khaqan Hassan Najeeb said in a separate interview Friday. Khan’s six-month-old government is tapping different sources to overcome a nearly $12 billion financing gap and boost its dwindling foreign reserves. He has already secured $6 billion in loans from friendly nations, including Saudi Arabia and the United Arab Emirates. Finance Minister Asad Umar said last week an investment package with China is almost complete, while talks with the International Monetary Fund for a bailout loan are ongoing. An accord with Riyadh for $3 billion of oil supply on deferred payments will be signed during Saudi Crown Prince Mohammed Bin Salman’s likely visit to Pakistan in mid-February, Sharif said. The Saudi and U.A.E packages were secured by premier Khan during his visit to the two countries last year. Sharif said international financial institutions have pledged to contribute to the fund, which will be used to develop the nation’s rural areas. Separately, he said, Pakistan has received “concrete” investment proposals of up to $40 billion from China, Saudi Arabia, the U.A.E, Malaysia and South Korea.
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