NEW YORK (Reuters) - U.S. government debt supply will likely continue to boom, but bond market investors seem to be taking it in stride.

FILE PHOTO: U.S. President Donald Trump departs after a signing ceremony with Treasury Secretary Steve Mnuchin at the Treasury Department in Washington, U.S., April 21, 2017. REUTERS/Aaron P. Bernstein

The Treasury Department is having to sell more debt to finance the government’s ballooning deficit, stemming from the massive federal tax overhaul in December and the spending deal passed in February. Still, bond yields have remained in a narrow range, suggesting investors may not be fretting about the swelling debt supply.

“There will be no relief from supply especially from bills going into October,” said Tom Simons, money market strategist at Jefferies & Co in New York. Supply is expected to run high at least until the Treasury provides updated forecasts on its borrowing needs, next due in November - and might even accelerate further.

This week, the Treasury will sell $34 billion in three-year notes, with $26 billion in 10-year debt on Wednesday and $18 billion in 30-year bonds on Thursday. It will also auction $51 billion in three-month bills and $45 billion in six-month bills, together with an expected $65 billion in one-month bills.

The supply will fall short of a record week of $294 billion set in March but continues a trend higher since February.

Analysts, who said the market would have no trouble digesting this week’s offerings, see the government as becoming increasingly dependent on private investors for cash as the Fed further reduces its bond holdings. The goal is to shrink a balance sheet that had grown to more than $4 trillion from three massive rounds of asset purchases to combat the previous recession.

“I think they will go fine,” Matt Freund, head of fixed income strategies at Calamos Investments in Chicago, said of this week’s debt auctions.

Analysts projected that supply will continue to climb, and that March’s record-setting weekly amount would be eclipsed in the coming weeks.

The Treasury said on July 30 it expected to borrow $56 billion more during the third quarter than its earlier estimate, resulting in issuing $329 billion in debt securities during this period.

For a graphic on U.S. debt to GDP ratio, click reut.rs/2KnfGbJ

FOCUS ON OTHER RISKS

The government’s rising debt load is a long-term concern for investors, but it is not atop their list of pressing worries.

The trade dispute between Washington and Beijing and the pace of Federal Reserve’s interest rate increases pose far graver threats to markets and the economy than more government IOUs, analysts said.

“It is a really, long-term powerful narrative, but when is it going to bite?” Calamos’ Freund said.

As long as the U.S. economy hums along and its bond yields are higher than most of its peers, appetite for U.S. Treasuries should remain solid in the foreseeable future, according to most analysts. Mild inflation and the Fed staying on a gradual rate-hike path also support U.S. bond demand, the analysts have said.

“From an absolute yield perspective, where else are you going to go?” said Eric Souza, senior portfolio manager at SVB Asset Management in San Francisco.

On Friday, benchmark 10-year Treasury yield slipped over 3 basis points at 2.952 percent following a mixed July payrolls report. Yields move inversely to prices.

The U.S. 10-year yield is running 2.50 percentage points above its German counterpart and 2.85 points higher than Japanese 10-year yield.

The U.S. budget gap is forecast to hit $1 trillion in fiscal year 2020, compared with $804 billion in the fiscal 2018, according to the Congressional Budget Office.

Given the growing deficit, the government has ramped up its issuance of bills and shorter-dated coupon debt to meet its funding needs after the suspension of the federal debt ceiling earlier this year.

For a graphic on U.S. Treasury bill issuance, click tmsnrt.rs/2O8Ob8n

For a graphic on U.S. Treasury 2018 coupon issuance, click tmsnrt.rs/2vgR0vZ

For an interactive graphic on U.S. budget deficit, click tmsnrt.rs/2qwtdqk