US Treasury to Increase Debt Issuance by $277 Billion Over Next Two Quarters
The Treasury Borrowing Advisory Committee (TBAC) has released its quarterly refunding announcement (QRA), outlining the government’s debt issuance strategy for the upcoming quarter. With interest rates above zero and rising fiscal deficits, market participants are closely monitoring the government’s funding plans.
The QRA includes projections for debt issuance from October 2024 to March 2025. The Treasury aims to reduce the Treasury General Account (TGA) from $886 billion to $700 billion between October and December 2024, issuing $546 billion in net issuance. For January to March 2025, the target TGA balance is set at $850 billion, with net borrowing expected to reach $823 billion.
The total debt issuance increase over the next two quarters is $277 billion, with $150 billion of this increase attributed to the decrease in the TGA balance. The composition of the debt to be issued remains critical, with Treasury Secretary Janet Yellen indicating no changes to the long-duration issuance composition in the coming quarters. As a result, any increase in borrowing needs will be met by issuing more short-term debt, specifically Treasury bills (T-bills).
A substantial rise in T-bill issuance is expected to fund the Treasury due to the planned TGA drawdown and subsequent increase. The Treasury forecasts an increase in the proportion of total net issuance that is T-bills, from 13% to 45%. This 45% weighting is an outlier and is expected to be reversed in the second quarter of 2025 when tax receipts reduce the need for T-bill issuance. However, concerns remain about the Treasury’s ability to avoid surprising markets with changes in duration, given that total Treasury debt is already above the upper limit of their target range at 22%.