Washington: The US treasury eliminated the three-year note as a narrowing US federal budget deficit reduces the need to borrow. Tax receipts are rising even as the economy slows, spurred by gains in income and an unemployment rate at a five-year low. The treasury said in Washington on 3 May that it will sell $32 billion (Rs1.3 lakh crore) of notes and bonds next week, $2 billion less than a year ago and below the median forecast of $33 billion.
The three-year treasury note has been a barometer of the government’s fiscal health. The department eliminated the security in 1998, at the start of a four-year run of budget surpluses, then brought it back in 2003 after record shortfalls caused borrowing to climb.
“The three-year note is the swing issue between the more popular two-year notes and five-year notes that the treasury cuts when its financing needs are reduced,” Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd in New York, said.
The federal budget gap will narrow to $177 billion this year from $248.7 billion in the 2006 financial year, according to a forecast from the Congressional Budget Office. The average estimate of primary dealers in Treasuries, who deal directly with the Federal Reserve Bank of New York, forecast a $184 billion shortfall. In 2004, the gap was a record $412.9 billion.
In its quarterly refunding next week, the treasury plans to sell a final $14 billion of three-year securities on 7 May. The government will also auction $13 billion of 10-year notes on 8 May and $5 billion of 29 3/4-year bonds 10 May. Analysts’ median forecasts for the sales were $14 billion, $13 billion and $6 billion, respectively.
“Discontinuing the three-year note will allow the treasury to ensure liquid benchmark issuances, better balance its portfolio and manage the improving fiscal outlook,” the department said in a statement.
“The Treasury will continue to assess the fiscal and economic outlook and to review the size, frequency and issuance of securities.”
Unemployment in the US dropped to 4.4% last month, matching the lowest since May 2001.
Incomes rose 0.7% for a second month in March, the commerce department reported this week. Swelling revenue from individual tax receipts spurred a record one-day tax take of $48.7 billion on 24 April, the treasury said last week.
The treasury on 30 April increased its estimate for the net paydown of debt it expects to make this quarter, by $15 billion to $145 billion. The federal government often runs a surplus in the April to June period as individuals pay income taxes.