Thursday, December 11, 2008

Multi-level Marketing

By John Brinsley and Dakin Campbell

Dec. 10 (Bloomberg) -- The U.S may introduce new financing methods to sell a record amount of debt needed to pay for as much as $2 trillion in borrowing needs this year, Treasury’s debt-management chief said.

“Treasury needs to be prepared to meet additional financing needs if necessary,” Treasury Assistant Secretary Karthik Ramanathan said in a speech today in New York. “This challenge may require novel approaches to debt management. He said debt sales may occur “in a short period of time.”

“There is plenty of uncertainty and risk that they need to borrow more,” said Michael Pond, an interest-rate strategist in New York at Barclays Capital Inc., one of 17 firms required to bid at government auctions. “They are trying to prepare the market for any potential changes down the road.”

Ramanthan said the introduction of a new seven-year note and the additional issuance of existing 30-year bonds has been suggested as ways to increase debt sales to close a federal deficit in fiscal 2009 expected to reach a record.

“The growth of Treasury and government-guaranteed debt will act as a catalyst for the return of smooth functioning credit markets and economic recovery, both of which will gain momentum as risk appetite returns,” Ramanathan said.

The Treasury may introduce a 50-year bond, though it’s not expected, while the Fed may issue bills or bill-like securities and use the proceeds to buy longer-term Treasuries, Pond said.

“You just never know what they are going to do,” Pond said. “I wouldn’t rule anything out."

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