TBAC Releases Quarterly Refunding Announcement Amid Rising Fiscal Deficits
The Treasury Borrowing Advisory Committee’s (TBAC) quarterly refunding announcement (QRA) has garnered significant attention due to the current fiscal environment. With interest rates no longer at zero and fiscal deficits rising, market participants are closely monitoring the government’s funding plans.
Key Highlights of the QRA:
* From October to December 2024, the Treasury aims to reduce the Treasury General Account (TGA) from $886 billion to $700 billion, with plans to issue $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, representing a significant increase in debt issuance.
* Total debt issuance is expected to increase by $277 billion over the next two quarters, with the decrease in the TGA balance accounting for $150 billion of this increase.
Debt Issuance Composition:
* Treasury Secretary Janet Yellen has indicated no changes to the long-duration issuance composition in the coming quarters, meaning the dollar amount of issuance for maturities longer than one year will remain constant.
* Any increase in borrowing needs will be met by issuing more short-term debt, specifically Treasury bills (T-bills).
* The Treasury forecasts an increase in the proportion of total net issuance that is T-bills, from 13% to 45%, exceeding the historical target range of 15% to 20%.
Market Implications:
* The planned TGA drawdown and subsequent increase will require a substantial rise in T-bill issuance to fund the Treasury.
* The 45% weighting in T-bills is likely an outlier and is expected to be reversed in the second quarter of 2025 when tax receipts reduce the need for T-bill issuance.
* With total Treasury debt already above the upper limit of the target range at 22%, there is concern about how long the Treasury can avoid surprising markets with changes in duration.