US Treasury cuts fourth-quarter borrowing estimate to $618 billion
The US Treasury has revised its borrowing estimate for the fourth quarter of 2024, reducing it to $618 billion, a $10 billion decrease from the $628 billion projection made in August. This downward adjustment is attributed to a higher-than-anticipated starting cash balance, which is partially offset by lower projected net cash flows.
If the benefit of the larger cash cushion is excluded, the borrowing needs increase by $24 billion compared to August's estimate. The Treasury anticipates a cash balance of $850 billion by the end of December, with a projected first-quarter 2027 borrowing of $800 billion, based on an end-of-March cash balance of $1 trillion. In the third quarter, the Treasury borrowed $742 billion, ending September with a cash balance of $984 billion, exceeding the August projection by $30 billion after accounting for the higher-than-expected cash balance at quarter-end.
The Treasury will unveil its refunding plans on Wednesday, and market participants will closely monitor for any indication of changes in auction sizes for future quarters. Earlier this month, the government expressed ongoing evaluation of potential alterations to its coupon and floating-rate auction sizes, a shift from its May announcement indicating potential future increases in debt sales.
This shift has sparked speculation that the Treasury could reduce the size of some longer-dated auctions and rely more heavily on Treasury bills and short- and intermediate-dated coupons to meet funding requirements. Analysts suggest that the 20- and 30-year auctions may be the most likely candidates for size reduction, with an emphasis on coupon increases in the 2- to 7-year sector.
The outlook for 10-year note auctions remains divided among analysts, with potential for growth. Traders will also observe potential adjustments to Treasury's buybacks, aimed at sustaining market liquidity. The Treasury has recently increased its longer-dated buybacks to a maximum of $6 billion per operation from $2 billion.
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