The Treasury plans to significantly reduce new borrowing in the form of issuing bonds to investors going into 2012. The rate of this wind down will be dependent upon the pace of the recovery, according to an official speaking today at the Futures Industry Association. Since the end of 2008, the Treasury has been increasing size, frequency and maturity of bond auctions “to meet the extraordinary financing needs of the government through this period,” said Mary Miller, assistant secretary for financial markets for the Treasury, said at FIA conference in New York earlier Tuesday. For example, officials began monthly auctions of 10-year and 30-year bonds instead of quarterly and also re-introduced three-year and seven-year maturities. Miller said the markets have calmed and the needs for liquidity subsided, enabling the Treasury to lower the size of its auctions by about $300 billion since May. “We have been able to moderate bill issuance and finance more of our needs from Treasury notes and bonds, from maturities of [two]-years out to 30 years,” Miller said. “Today, T-bills represent about 20% of our outstanding issuance, down from nearly 35% at the end of 2009.” She also said the department has seen strong demand for Treasury Inflation Protected Securities, or TIPS, which provide somewhat of a hedge against possible inflation. Miller expects about $100 billion of TIPS issuance next year, following more than $80 billion this year and $58 billion in 2009. Miller said the housing market remains weak, and the shadow inventory of foreclosed and vacant housing “will likely weigh on residential investment for some time.” She said the Obama administration is evaluating the nation’s housing-finance system and plans to deliver a proposal in January on possible reform that will also include details on the future of Fannie Mae and Freddie Mac, which have been in government conservatorship since September 2008. She said the nation is “in an important transition period as government support for the economy subsides and private demand takes over.” “Private demand, including business investment and even consumer spending, has increased recently and will likely continue to increase in the second half of 2010,” Miller said. She said the economic recovery is progressing and “the legacy of the financial crisis and ensuing recession will require significant fiscal discipline to restore budget balance.” “After a year of positive growth in GDP, we are seeing improvements in revenues at the federal level,” Miller said. “Corporate tax revenues are running over 40% above last year’s levels and personal income taxes are 5% ahead.” Write to Jason Philyaw.

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