Blockworks reports that the Treasury Borrowing Advisory Committee (TBAC) has issued its quarterly refunding announcement (QRA), attracting immense attention given the prevailing fiscal environment. The TBAC plays a crucial role in guiding the Treasury on its debt issuance strategy for the forthcoming quarter.
With interest rates moving away from zero and fiscal deficits increasing, market participants are vigilant on how the government will finance its operations. The dynamics of supply and demand for US Treasury yields hinge on the volume of debt released, especially at the longer end of the yield curve, which can sway market prices. This week, the Treasury unveiled the final QRA before the impending election.
The report outlines projections for debt issuance for the upcoming two quarters. From October to December 2024, the Treasury aims to pare down the Treasury General Account (TGA) from $886 billion to $700 billion, while planning to issue a net total of $546 billion. For the January to March 2025 period, the target TGA balance is set at $850 billion, with net borrowing predicted to hit $823 billion.
This represents a notable rise in debt issuance, amounting to an additional $277 billion over the next two quarters, with the decrease in the TGA balance contributing $150 billion to this overall increase. The composition of the forthcoming debt issuance is also a pivotal element of the QRA. Treasury Secretary Janet Yellen has communicated that there will be no alterations to the long-duration issuance makeup in the near future.
This indicates that the dollar volume for issuances with maturities exceeding one year will remain unchanged. Thus, any escalation in borrowing needs will be accommodated through the issuance of additional short-term debt, particularly Treasury bills (T-bills). Given the strategic TGA drawdown to $700 billion and the planned rise to $850 billion, a significant augmentation in T-bill issuance will be required to facilitate the Treasury's operations. Forecasts from the Treasury indicate a rise in the percentage of total net issuance that consists of T-bills, shifting from 13% to 45%.
Traditionally, the Treasury aims for a long-term average of 15% to 20% of its overall debt to be represented by T-bills. This elevated 45% proportion is likely to be an outlier and is anticipated to normalize in the second quarter of 2025 when tax receipts lessen the requirement for T-bill issuances.
Nevertheless, with total Treasury debt already surpassing the upper threshold of their target range at 22%, concerns persist about the duration changes the Treasury might have to implement to avoid destabilizing market expectations..