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Tags: US Treasury, federal borrowing, fiscal deficit, borrowing estimate, cash balance, debt managers, Treasury bonds, yields, fiscal year, borrowing projections, Federal Reserve, quantitative tightening.
The US Treasury has revised its borrowing estimate for the current quarter, offering some relief for investors concerned about the rapidly increasing fiscal deficit. The new estimate for the October-to-December quarter is $776 billion, down from the $852 billion predicted in late July. The estimate for the Treasury’s cash balance at the end of December remains at $750 billion.
Although the new borrowing amount is somewhat smaller than what many strategists had forecast, it still marks a record borrowing amount for the calendar fourth quarter. Part of the reason for the reduced figure is the magnitude of deferred tax receipts coming from areas of California and other states that were granted extensions due to natural disasters, according to Treasury officials.
Yields on longer-term Treasuries have risen since the department’s plans for increased issuance of those securities were revealed in August. Market participants are now awaiting the Treasury’s updated issuance plans, set for release on Wednesday.
The federal deficit doubled in the fiscal year through September compared to the previous year, reaching approximately $2.02 trillion, leading to increased borrowing by the Treasury. For the January-to-March quarter, the Treasury expects to borrow a net $816 billion, with a cash balance of $750 billion expected at the end of the period.
As of October 26, the Treasury’s cash balance was about $835 billion, up from around $502 billion on July 31 when the department released its initial financing projections for this quarter.
During the quarterly refunding, dealers anticipate that debt managers will increase coupon-bearing debt sales across the yield curve for the second consecutive time, although there is no unanimous agreement on which maturities will carry the most weight in the new issuance.
JPMorgan economists predict that the Federal Reserve’s quantitative tightening (QT), which forces the Treasury to borrow more from private-sector investors, will continue through the end of 2024. QT involves allowing up to $60 billion of Treasuries to mature each month without the Fed replacing those securities.
