U.S. Treasury Slashes Quarterly Borrowing More Than Expected

The U.S. Treasury slashed its estimated borrowing needs for the three months through March by more than analysts had anticipated, citing what it said was less spending than it expected before the start of the year.

The Treasury’s estimates, released in Washington Monday, don’t reflect President Joe Biden proposed $1.9 trillion package, and the department said the enactment of further Covid-19 relief could result in greater borrowing than it now projects.

The Treasury now expects to borrow $274 billion in January through March, some $853 billion less than the Treasury projected in November, when it expected to borrow $1.127 trillion in net marketable debt issuance over the quarter. The Treasury kept its cash balance estimate for the end of March at $800 billion.

When the Treasury put together its prior estimates it had penciled in future stimulus of about $1 trillion by the end of March. A $900 billion package did get enacted at the end of December, with the first spending under that bill going out in the final days of the month.

Surprising Cut

The major reduction in borrowing needs for this quarter goes well beyond what analysts including those at JPMorgan Chase & Co. anticipated. The Wall Street bank had predicted a $685 billion borrowing estimate, with a higher cash balance for the end of March.

The Treasury said it had a “higher beginning-of-January cash balance as a result of lower-than-assumed expenditures.”

For the three months through June, the Treasury anticipates borrowing $95 billion through net new marketable debt issuance, assuming a cash balance of $500 billion at the end of the period -- though those figures would likely change assuming a fresh spending bill does get passed.

Biden has called for a further giant dose of relief spending, yet the ultimate size and timing of the bill remains unclear given Republican opposition. A Treasury official told reporters that given the wide range of potential outcomes, it seemed best to simply leave out a projection at this point.

Almost ‘Impossible’

JPMorgan penciled in a $1.225 trillion estimate for borrowing in April-to-June, assuming a relief package will be enacted sometime this quarter.

Monday’s revisions are the latest in a series over recent quarters, with spending and revenue made volatile by the pandemic, along with hard-to-pin down timing on fiscal packages. Some analysts have noted the challenge in gaming out the Treasury’s borrowing needs amid the talks over pandemic aid.

“Uncertainty over the size and timing of stimulus has frankly made the process of forecasting borrowing needs and Treasury cash balances all but impossible,” Jefferies economists Thomas Simons and Aneta Markowska wrote in a Jan. 27 note.

U.S. Treasury Slashes Quarterly Borrowing More Than Expected

The U.S. federal budget deficit has ballooned in wake of the emergency spending in 2020. The December relief bill put the U.S. shortfall on a course to exceed $2.3 trillion in fiscal 2021, the second-highest on record, following the 2020 gap of $3.13 trillion, according to the Committee for a Responsible Federal Budget.

Monday’s borrowing estimates precede the Treasury’s so-called quarterly refunding announcement at 8:30 a.m. New York time on Wednesday, when the department releases plans for the sizes of auctions of longer-term debt, along with any shifts in its issuance strategy.

A majority of Wall Street dealers predict the Treasury will hit the pause button for the next few months, after the department hoisted long-term auctions to unprecedented sizes over the last three quarters to finance pandemic relief.

Most expect the government will keep its nominal note and bond sales steady this time, noting that the department can also tap its outsize cash balance of nearly $1.6 trillion.

A move to reduce cash may also be prudent given that the department will need to shrink that pile if Congress doesn’t lift the debt ceiling or extend the current suspension of the limit, which ends July 31. In that scenario, the Treasury would have to return its cash balance to the level when the suspension was put in place, back in 2019.

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