**TBAC Quarterly Refunding Announcement: Implications for US Treasury Yields**
The US 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. The QRA is closely watched by market participants, particularly with interest rates no longer at zero and fiscal deficits rising. The amount of debt issued affects the supply and demand dynamics of US Treasury yields, impacting market prices, especially at the long end of the yield curve.
**QRA Projections: October 2024 to March 2025**
The Treasury aims to reduce its General Account (TGA) balance from $886 billion to $700 billion between October and December 2024, with plans to issue $546 billion in net issuance. For the following quarter (January to March 2025), the 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**
Treasury Secretary Janet Yellen has indicated that there will be no changes to the long-duration issuance composition in the coming quarters. This means that 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).
**Rise in T-Bill Issuance**
Due to the planned TGA drawdown to $700 billion and subsequent increase to $850 billion, a substantial rise in T-bill issuance will be necessary to fund the Treasury. The Treasury is forecasting 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.
**Concerns About Sustainability**
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.
