The Treasury Borrowing Advisory Committee (TBAC) has released its quarterly refunding announcement (QRA), which provides guidance on the US Treasury’s debt issuance strategy for the upcoming quarter. With interest rates risen and fiscal deficits increasing, market participants are closely monitoring the government’s funding plans.
The TBAC’s projections for debt issuance cover the next two quarters. From October to December 2024, the Treasury plans to reduce the Treasury General Account (TGA) from $886 billion to $700 billion by issuing $546 billion in net issuance. For January to March 2025, the target TGA balance is $850 billion, with net borrowing expected to reach $823 billion, totaling a $277 billion increase in debt issuance over the next two quarters. The decrease in the TGA balance accounts for $150 billion of this increase.
The composition of the debt to be issued is crucial, 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 will be necessary to fund the Treasury, with a forecasted increase in the proportion of total net issuance that is T-bills from 13% to 45%.
This 45% weighting is expected to be reversed in the second quarter of 2025 when tax receipts reduce the need for T-bill issuance. Historically, the Treasury targets a long-term average of 15% to 20% of total debt being T-bills. However, with total Treasury debt already above the upper limit of their target range at 22%, concerns arise about how long the Treasury can avoid surprising markets with changes in duration.