Treasury Borrowing Advisory Committee Releases Quarterly Refunding Announcement
The Treasury Borrowing Advisory Committee (TBAC) has released its quarterly refunding announcement (QRA), outlining the US Treasury’s debt issuance strategy for the upcoming quarter. This QRA is particularly significant due to the current fiscal environment, where interest rates are no longer at zero and fiscal deficits are rising.
The TBAC advises the Treasury on debt issuance strategy, which affects market participants closely monitoring government funding. The amount of debt issued, especially at the long end of the yield curve, influences supply and demand dynamics of US Treasury yields, impacting market prices.
The Treasury’s Latest Projections
The US Treasury’s last QRA before the upcoming election includes projections for debt issuance for the next two quarters:
* October to December 2024: Reduce the Treasury General Account (TGA) from $886 billion to $700 billion, with plans to issue $546 billion in net issuance.
* January to March 2025: Target TGA balance is set at $850 billion, with net borrowing expected to reach $823 billion.
This represents a significant increase in debt issuance, totaling an additional $277 billion over the next two quarters. The decrease in the TGA balance accounts for $150 billion of this increase.
Composition of Debt Issuance
The composition of debt to be issued is also critical. Treasury Secretary Janet Yellen has indicated that there will be 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.
Consequently, any increase in borrowing needs will be met by issuing more short-term debt, specifically Treasury bills (T-bills). The planned TGA drawdown to $700 billion and subsequent increase to $850 billion will require a substantial rise in T-bill issuance to fund the Treasury.
The Treasury forecasts an increase in the proportion of total net issuance that is T-bills, from 13% to 45%. Historically, the Treasury targets a long-term average of 15% to 20% of total debt being T-bills.
This 45% weighting 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. However, with total Treasury debt already above the upper limit of their target range at 22%, there is concern about how long the Treasury can avoid surprising markets with changes in duration.
