US cuts quarterly borrowing target to US$776 billion, still record
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 to December quarter to US$776 billion, against the US$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 US$750 billion.
The new borrowing amount is somewhat smaller than many strategists’ forecasts. JPMorgan Chase & Co had pencilled US$800 billion, with no change in the cash-balance estimate. Ten-year Treasury yields dipped slightly after Monday’s (Oct 30) release and were at 4.86 per cent as at 3.07 pm 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 on 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 on Wednesday.
The federal deficit roughly doubled in the fiscal year till September compared with the year before, effectively reaching US$2.02 trillion, forcing the Treasury to step up its borrowing.
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For the January-to-March quarter, the Treasury said on Monday it expects to borrow a net US$816 billion, with a cash balance of US$750 billion seen for the end of the period.
The Treasury’s cash balance was about US$835 billion as at Oct 26, up from about US$502 billion on Jul 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 do not 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 (QT), which is forcing the Treasury to borrow more from the private-sector investors, will continue till the end of 2024. QT currently involves letting up to US$60 billion a month of Treasuries mature without the Fed replacing those securities. BLOOMBERG
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