US says ratings cut wouldn't impact debt strategy

Senior US Treasury officials on Wednesday played down chances that their future debt sales strategy will be affected by a possible downgrade of US debt by ratings agencies.

After unveiling plans to sell USD 72 billion of new debt next week -- an action made possible only because of a last-minute debt-limit hike on Tuesday -- the Treasury said it will continue lengthening the average maturity of the debt it sells.

"We've been interested in extending the average maturity of our portfolio since the end of 2008," said Mary Miller, Treasury's assistant secretary for financial markets.

Treasury flooded markets with short-term debt during the 2007-2009 financial crisis to add liquidity, shortening average maturities to about 48 months and it now wants to move that parameter back to around 62 months.

BUYING STILL STRONG

"Irrespective of anything, or any discussion around ratings agencies, I'd say our intention is to continue on that path," Miller added. Other officials noted demand has remained strong for all of its offerings, apparently reflecting investors' continuing belief in the soundness of US debt.

Prices for long-dated US Treasury debt have risen sharply in recent days as concern over the health of the US and global economies has climbed.

Treasury said it will sell USD 72 billion of new debt next week -- USD 32 billion of three-year notes on Tuesday, USD 24 billion of 10-year notes on Wednesday and USD 16 billion of 30-year bonds on Thursday.

The so-called quarterly refunding will raise money the government needs to pay its bills but was in question until Congress finally approved an increase in the nation's debt limit.

Congress voted to raise the USD 14.3 trillion limit by USD 400 billion immediately, allowing Treasury to proceed with the quarterly debt auctions.

The debt limit ultimately is to be raised a total USD 2.1 trillion in three stages, absent a decision by a super-majority in both the House of Representatives and Senate to block further increases.

The decision to raise the debt limit was coupled with a plan to cut U.S. budget deficits by at least USD 2.1 trillion over 10 years. Still, financial markets remain uncertain whether ratings agencies will downgrade the US triple-A debt rating -- an action that could push borrowing costs up throughout the economy for everyone from homebuyers to Treasury itself.

WALL STREET SUPPORTIVE

Wall Street advisers who met Treasury officials before the refunding announcement were not overly concerned about the prospect of a downgrade.

"None of the members thought that a downgrade was imminent," minutes of the Treasury's borrowing advisory committee said. Some of the Wall Street firms represented also questioned whether a downgrade would be meaningful in view of the credit ratings agencies' credibility issues, according to Treasury officials

The credit rating agencies have been widely blamed for not sounding the alarm on dubious mortgage securities that were being issued to support the over-inflated housing market that peaked in 2006. The housing bust brought on the 2007-2009 financial crisis that has left a deep scar on the economy.

"I think the financial crisis raised serious questions about the methodologies they used, their analysis, their transparency," Sen. Jack Reed, a Democrat on the Senate Banking Committee, told Reuters.

"Frankly, after the mortgage bond fiasco, you have to take it with a grain of salt," he added.

The Treasury said that in response to the new plan to cut US budget deficits, it will "modestly decrease" the size of future debt offerings since borrowing needs should decline.

On Monday, the Treasury said it will borrow about USD 331 billion total during the current quarter and likely about USD 285 billion more in the fourth quarter of this year.