US Treasury Plans to Increase Debt Issuance by $277 Billion in Next Two Quarters
The Treasury Borrowing Advisory Committee (TBAC) has released its quarterly refunding announcement (QRA), providing insight into the government’s debt issuance strategy for the upcoming quarter. With rising fiscal deficits and interest rates above zero, 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 its General Account balance from $886 billion to $700 billion, with plans to issue $546 billion in net debt issuance for the October-December period. For January-March 2025, the target balance is set at $850 billion, with expected net borrowing of $823 billion.
The planned debt issuance represents a significant increase, totaling an additional $277 billion over the next two quarters. The decrease in the Treasury General Account balance accounts for $150 billion of this increase.
The composition of the debt to be issued is also crucial, with Treasury Secretary Janet Yellen indicating no changes to 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).
Due to the planned Treasury General Account drawdown and subsequent increase, a substantial rise in T-bill issuance is expected to fund the Treasury. The Treasury forecasts an increase in the proportion of total net issuance that is T-bills, from 13% to 45%, significantly above its historical target range of 15-20%. This is likely an outlier, 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 its target range upper limit of 22%, there are concerns about how long the Treasury can avoid surprising markets with changes in duration.
