The U.S. Treasury on Monday updated its borrowing forecast for the third quarter, saying it now expects to borrow $739 billion - an increase of $68 billion from the estimate it released in May. The department said the revision reflects lower projected cash inflows that were only partly offset by a higher-than-assumed starting cash balance.
When the benefit of that larger opening cash cushion is removed, the Treasury said the underlying increase in borrowing needs is $87 billion compared with the May estimate. In its quarterly refunding statement the department said it is assuming a cash balance of $950 billion at the end of September.
Looking further ahead, the Treasury projected borrowing of $628 billion for the fourth quarter, based on a year-end cash balance assumption of $850 billion.
On recent cash activity, the department reported it borrowed $190 billion in the second quarter and closed June with a cash balance of $919 billion. The Treasury noted that this end-of-June balance was $1 billion higher than it had projected in May. Excluding the effect of the higher-than-assumed end-of-quarter cash balance, the department calculated that the borrowing outcome was $18 billion less than expected.
The Treasury said it will provide full details of its refunding plans, including auction sizes, on Wednesday. Market participants will be paying close attention for indications the department plans to place greater emphasis on issuing longer-dated debt in upcoming quarters.
The timing of that announcement comes against a backdrop of rising market stresses. Oil prices have climbed as the conflict between Israel and Iran has re-intensified, the Treasury statement said, intensifying concerns about already-elevated inflation. Those developments have coincided with a rise in longer-dated Treasury yields to multi-year highs, amplifying investor sensitivity to changes in issuance strategy.
Analysts noted that the recent move in oil and bond markets gives the Treasury additional reason to maintain a predictable issuance path and avoid surprises that could unsettle a jittery bond market.
Context for markets
- Fixed-income markets are likely to watch the Treasury's auction calendar and any tilt toward longer maturities closely.
- Energy market developments, particularly oil-price swings tied to geopolitical tensions, are contributing to inflation concerns that feed into bond-market dynamics.
- Investors will monitor both the size and maturity mix of upcoming Treasury supply for signs of shifts in fiscal funding strategy.