Treasury to Increase Debt Issuance by $277 Billion Over Next Two Quarters
The US Treasury Borrowing Advisory Committee (TBAC) has released its quarterly refunding announcement (QRA), outlining plans for debt issuance in the next two quarters amidst rising fiscal deficits and non-zero interest rates. The QRA is crucial in understanding the government’s funding strategy and its impact on US Treasury yields.
For the period from October to December 2024, the Treasury aims to reduce its General Account (TGA) balance from $886 billion to $700 billion. This will be achieved through net debt issuance of $546 billion. In the subsequent quarter, from January to March 2025, the target TGA balance is $850 billion, with expected net borrowing of $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. The Treasury’s debt issuance composition will remain unchanged, with no alterations to long-duration issuance 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).
The Treasury expects a substantial rise in T-bill issuance to fund its needs. This is reflected in the forecasted 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. The 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.
