US Cuts Borrowing Estimate, Sees Smaller Cash Buffer at Year-End

(Bloomberg) -- The US Treasury reduced its estimate for federal borrowing for the current quarter and projected the government’s cash buffer to decline toward year-end, just ahead of a possible fresh fight over the debt limit.

The Treasury Department said in a statement Monday that it now estimates $740 billion in net borrowing for July through September, down from a previous prediction of $847 billion released on April 29. The decrease was expected by most bond dealers.

Authorities maintained their estimated cash balance for the end of September at $850 billion.

Also, in a forecast that will be closely watched by dealers because it has potential implications for any upcoming debt-limit battle, the Treasury penciled in a year-end cash balance of $700 billion. That stockpile would then be whittled down after the debt ceiling by law kicks back in at the start of next year — unless Congress passes an increase or new suspension.

As for this quarter, the Federal Reserve’s move to start slowing the runoff of its holdings of Treasuries eased the government’s need to sell more debt to the public, the Treasury’s statement indicated. The Fed’s plan hadn’t been in place when the Treasury released its previous borrowing estimate. The department also started off this quarter with more cash on hand than originally projected.

Thomas Simons, senior US economist at Jefferies, had forecast a current-quarter borrowing estimate revision to $750 billion.

The Treasury’s cash balance at the end of June, at about $778 billion, was above the $750 billion level Treasury had targeted at the end of April. That stockpile stood at about $768 billion as of last Thursday.

The law doesn’t dictate a precise amount of cash that the Treasury is allowed to have on hand when the debt limit kicks in. Some dealers had anticipated the department would provide a smaller estimate for its cash balance target for the end of December, just before the debt limit’s reinstatement in January. But that view wasn’t universal. A smaller cash pile would imply slightly less bill issuance at the end of the year.

The targeted end-of-December cash balance level “is also its assumed cash balance upon the expiration of the debt limit suspension on January 1, 2025,” according to a footnote in the Treasury statement. “This assumption is based on expected cash flows under Treasury’s cash management policies and is consistent with its authorities and obligations, including those under the Fiscal Responsibility Act of 2023.”

Subadra Rajappa, head of US rates strategy at Societe Generale, had forecast a year-end cash buffer of $550 billion. Her counterpart at TD Securities, Gennadiy Goldberg, had predicted the Treasury would project a year-end cash balance of $850 billion.

For the October-December period, the Treasury said it expects to borrow a net $565 billion.

Monday’s report comes ahead of Wednesday’s so-called quarterly refunding announcement, when the Treasury will unveil its plans for long-term debt issuance. Dealers widely expect US debt managers to hold sales of notes and bonds steady for the second straight quarter.

--With assistance from Reade Pickert.

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.