US Cuts Quarterly Borrowing Target to $776 Billion, Still Record

by Liz Capo McCormick of Bloomberg News, 10/31/23

The US Treasury reduced its estimate for federal borrowing for the current quarter thanks to stronger-than-expected revenues, offering some relief for investors concerned about the rapidly widening fiscal deficit.

The Treasury Department cut its net borrowing estimate for the October-through-December quarter to $776 billion, against the $852 billion for the period predicted in late July. Debt managers kept their estimate for the Treasury’s cash balance for the end of December at $750 billion.

The new borrowing amount is somewhat smaller than many strategists’ forecasts. JPMorgan Chase & Co. had penciled $800 billion, with no change in the cash-balance estimate. Ten-year Treasury yields dipped slightly after Monday’s release, and were at 4.86% as of 3:07 p.m. in New York.

Despite the reduction in the estimate, the new projection still marks a record borrowing amount for the calendar fourth quarter. Part of the reason for the smaller figure is the magnitude of deferred tax receipts coming from areas of California and other states that had been granted extensions due to natural disasters, Treasury officials told reporters Monday.

Yields on longer-term Treasuries have soared since the department in August unveiled plans for increased issuance of those securities. Market participants are now eager to see the Treasury’s updated issuance plans, set for release Wednesday.

The federal deficit roughly doubled in the fiscal year through September compared with the year before, effectively reaching $2.02 trillion, forcing the Treasury to step up its borrowing.

For the January-to-March quarter, the Treasury said Monday it expects to borrow a net $816 billion, with a cash balance of $750 billion seen for the end of the period.

The Treasury’s cash balance was about $835 billion as of Oct. 26, up from about $502 billion on July 31, when the department released its initial financing projections for this quarter.

In Wednesday’s so-called quarterly refunding, dealers expect debt managers to lift coupon-bearing debt sales across the yield curve for the second straight time — though they don’t all agree on exactly which maturities will carry the most weight of the new issuance.

“Treasury’s current auction schedule is insufficient to meet its prospective financing needs” as “the funding gap remains large in coming years,” said Jay Barry, co-head of US rates strategy at JPMorgan.

The bank’s economists predict the Federal Reserve’s so-called quantitative tightening, which is forcing the Treasury to borrow more from private-sector investors, will continue through the end of 2024. QT currently involves letting up to $60 billion a month of Treasuries mature without the Fed replacing those securities.

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Bloomberg News provided this article. For more articles like this please visit bloomberg.com.

US Cuts Quarterly Borrowing Target to $776 Billion, Still Record

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