US Treasury Adjusts Debt Estimates
The US Treasury has revised its debt issuance forecast for the current quarter, reducing its borrowing estimate while raising the debt it had previously projected for the quarter ending June 30. This comes ahead of Wednesday's Quarterly Refunding Announcement. The Treasury continues to anticipate a $700 billion cash balance at the end of the year, just before the federal debt ceiling comes into effect again.
Debt Projections for 2025
As we move into 2025, the Treasury expects to raise $823 billion in new debt in the first calendar quarter. This is largely due to the expectation that the Treasury cash balance will increase by $150 billion to $850 billion. This projection does not account for another potential debt ceiling crisis, which could significantly lower the cash balance in Q1 and subsequent quarters.
Details from the Treasury Statement
The Treasury statement provided further details on the debt situation. In the July-September 2024 quarter, the Treasury borrowed $762 billion in privately-held net marketable debt, ending the quarter with a cash balance of $886 billion. This exceeded the initially expected $850 billion.
For the October-December 2024 quarter, the Treasury plans to borrow $546 billion in privately-held net marketable debt, assuming a cash balance of $700 billion at the end of December. This borrowing estimate is $19 billion lower than what was announced in July 2024.
The Treasury also expects to borrow $823 billion in privately-held net marketable debt in the January-March 2025 quarter, assuming a cash balance of $850 billion at the end of March.
Dealers' Expectations and Borrowing Estimates
Dealers had varied expectations for the new borrowing estimate before Monday's release. JPMorgan Chase & Co. strategists expected a cut to $529 billion, while the team at BNP Paribas predicted an increase to $600 billion.
The projected borrowing need of $823 billion in Q1 2025 would be the highest since the September 2023 quarter.
Debt Ceiling and Bill Supply
A team of strategists at TD Securities, including Gennadiy Goldberg, anticipates that the Treasury will start to limit bill supply in March 2025 and will significantly reduce bill supply in Q2. They also predict that with a likely debt ceiling increase or suspension in Q3, the Treasury will aggressively ramp up bill issuance as the cash balance is restored to a more normal level.
Upcoming Refunding Announcement
Wednesday's quarterly refunding announcement will reveal the Treasury's plans for long-term debt issuance. Bond dealers widely expect the refunding auctions to total $125 billion for the third consecutive quarter. Many also anticipate an increase in Bill Issuance towards the end of the year, which could pose a problem as the Reverse Repo facility only holds just over $200 billion and is at risk of being rapidly depleted, potentially triggering another repo market crisis.
Bottom Line
The US Treasury's revised debt estimates and projections for 2025 indicate significant borrowing needs and potential challenges related to the debt ceiling and bill supply. As we await the upcoming refunding announcement, it's worth considering the potential implications of these debt dynamics on the economy. What are your thoughts on this matter? Feel free to share this article with your friends and sign up for the Daily Briefing, which is available every day at 6pm.
