Treasury Borrowing Advisory Committee (TBAC) Releases Quarterly Refunding Announcement

The TBAC has issued its quarterly refunding announcement (QRA), providing insight into the government’s debt issuance strategy for the upcoming quarter. Given the current fiscal environment, market participants are closely monitoring the government’s funding plans. Interest rates are no longer at zero, and fiscal deficits are rising, affecting the supply and demand dynamics of US Treasury yields.

QRA Projections: October 2024 to March 2025

The Treasury aims to reduce the Treasury General Account (TGA) from $886 billion to $700 billion from October to December 2024, 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. This represents a significant increase in debt issuance, totaling an additional $277 billion over the next two quarters.

Debt Issuance Composition

Treasury Secretary Janet Yellen has announced that there will be 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). Due to the planned TGA drawdown and subsequent increase, a substantial rise in T-bill issuance will be necessary to fund the Treasury.

Shift in Treasury Bills Issuance

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, 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%, concerns remain about the Treasury’s ability to avoid surprising markets with changes in duration.