Treasury to cut bond supply at next auction

NEW YORK -- In an announcement eagerly anticipated in the credit markets, the Treasury said yesterday that to reduce borrowing costs it would cut the amount of bonds to be offered at next week's quarterly refunding auctions.

To meet its financing needs, the Treasury is now expected to come to market with more securities with shorter maturities, because in today's market it will pay far less interest on those securities.

Since there is now an unusually wide spread between short- and long-term rates, politicians and academics have been urging the Treasury to take this step for weeks, arguing that the move would not only lower borrowing costs but might also help bring down long-term interest rates, a development that would help the still-stagnant economy.

The government sells its benchmark long-term bonds four times a year.

The auctions will begin Tuesday with the three-year note sale and conclude Thursday, when the 30-year bonds are scheduled to be sold.

Market reaction to the announcement was mildly positive, as prices of Treasury securities rose in light trading.

But analysts were more critical of the Treasury's step. They accused the Treasury of bowing to political pressure by cutting the size of the bond auction and suggested that it might happen again, even though the Treasury said it had no such intention.