Treasury Department Plans to Borrow $776 Billion in Q4 2023, Below Previous Estimates
In a surprising move, the Treasury Department has announced plans to borrow $776 billion in the last three months of 2023, which is $76 billion below its earlier estimate. This marks a significant slowdown from the borrowing frenzy witnessed in the previous quarter.
The announcement, made on Monday, indicates that the US expects to borrow $776 billion from October to December, which is $76 billion below the estimates provided in July. Tax receipts are anticipated to increase during this period, leading to the decrease in borrowing requirements.
Following this news, US bond yields experienced a pullback on Tuesday. The 10-year US Treasury yield declined by 2 basis points to 4.858%, while the 30-year yield fell 3 basis points to 5.005%.
Market participants eagerly await the Treasury Department’s update on Wednesday to gain insight into how the new borrowing plan will impact auction sizes. However, it is important to note that this year-end projection differs significantly from the shock bond traders experienced during the summer.
During that time, the Treasury unexpectedly revised its borrowing for July-September to $1.01 trillion, surpassing estimates by $274 billion. This led to a surge in bond yields and contributed to a historic Treasury sell-off.
Despite the current slowdown, the Treasury Department will still need to issue US debt at higher levels. The borrowing projection is anticipated to climb to a record high of $816 billion for the January-March period.
This increased supply of bonds aligns with recent indications of weakening investor demand for Treasurys, as well as a ballooning federal deficit. Wall Street has even adjusted its estimates for 2024 bond issuance to align with these developments.
However, there are some who believe that year-end borrowing may fall below consensus. Morgan Stanley argues that the rising term premium, which reflects the compensation investors require for holding the debt asset, provides an incentive for the Treasury to decrease issuance.
As the Treasury Department adopts this new borrowing plan, the financial market eagerly awaits further updates and remains attentive to how these changes will impact various sectors and investors.
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