Treasury seeks dealer input on market capacity for T-bill issuance

By Karen Brettell

(Reuters) -The U.S. Treasury Department on Friday asked primary dealers for input regarding how it should rebuild its cash balance following the increase in the debt ceiling, and how many Treasury bills it could issue without disrupting the market.

The survey was part of Treasury's normal procedure ahead of its quarterly refunding announcement, which is next due later this month.

U.S. Congress last week passed a tax and spending bill that is expected to add trillions in debt over the coming decade and increase the debt ceiling by $5 trillion.?

Treasury said on Tuesday it will build its cash balance to $500 billion by the end of July by increasing its issuance of Treasury bills.

In Friday's survey, Treasury asked banks, "What factors should Treasury consider when determining Treasury bill issuance to gradually rebuild the cash balance over time to a level more consistent with its cash balance policy?"

It further asked dealers to estimate the market's capacity to absorb additional bill issuance on a monthly and quarterly basis, "that would not cause significant price deviations in Treasury bills relative to fair value."

Treasury is also expected to increase its sales of bills, debt that matures in one year or less, as it faces a worsening budget deficit.

Treasury Secretary Scott Bessent has said he does not expect to increase auction sizes of longer-dated debt at current interest rates. This has led banks to assume Treasury will continue to rely more on bills to finance operations for the foreseeable future.

U.S. President Donald Trump has said Federal Reserve Chair Jerome Powell is being too slow to cut interest rates, which he says should be at least three percentage points lower.

Treasury also sought dealer feedback on how it may enhance its Treasury buyback program, which is used for both cash management and liquidity support purposes.?

(Reporting by Karen Brettell; Editing by Rod Nickel)