On Monday, the U.S. Department of the Treasury lowered its federal borrowing estimate for this quarter, stating that it now expects a net borrowing of $546 billion from October to December, down from the $565 billion forecasted in July. The reduced borrowing requirement for the Treasury this quarter is mainly due to higher cash reserves at the end of September than previously anticipated, although this increase was partially offset by lower net cash flows.
Prior to the release of the Treasury's net borrowing estimate, Wall Street investment banks had varying forecasts:
JPMorgan Chase expected a reduction to $529 billion.
BNP Paribas predicted an increase to $600 billion, partly based on the deficit situation in October and November, which account for nearly a quarter of the federal government's annual deficit, and the deficit is still expanding.
Wrightson ICAP economist Lou Crandall forecasted a borrowing estimate of $540 billion. He anticipates that Treasury officials this week will not provide specific expectations for the upcoming debt ceiling timeline.
Consistent with previous estimates, the Treasury continues to expect a cash balance of $700 billion by the end of the year, just as the federal debt ceiling is about to take effect again.
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The Treasury's cash balance at the end of September was $886 billion, while the target at the end of July was $850 billion. As of last Thursday, the Treasury's cash balance was approximately $834 billion.
The Treasury stated that the estimated $700 billion cash balance by the end of the year is also the assumed cash balance when the debt ceiling suspension period ends on January 1, 2025. The actual figure may vary depending on cash flow changes at the end of 2024.
The Treasury expects a net borrowing of $823 billion for the first quarter of 2025, assuming a cash balance of $850 billion at the end of the quarter. This would be the largest nominal borrowing amount for that quarter in history, although not after adjusting for changes in quarterly cash balances.
The Treasury's estimates are based on the assumption that the country's Congress will raise or suspend the debt ceiling again. However, if Congress members fail to take action, and it should be noted that they often struggle to pass relevant legislation in advance, then the resumption of the debt ceiling will trigger a series of measures by the U.S. Treasury to ensure that it remains within the limit while continuing to fulfill government payment obligations. As this process unfolds, Treasury officials will provide guidance to Congress on these measures.Gennadiy Goldberg's team of strategists anticipates that the U.S. Treasury will begin to restrict the supply of short-term bills in March 2025 and will significantly reduce the supply of short-term bills in the following year's second quarter. As the U.S. government may raise or suspend the debt ceiling in the third quarter, the U.S. Treasury will substantially increase the issuance of short-term bills to restore cash balances to a more normal level.
On Wednesday of this week, the U.S. Treasury will release a significant quarterly refinancing announcement, which will disclose its long-term debt issuance plan. Bond dealers widely expect the total amount of refinancing auctions to reach $125 billion for the third consecutive quarter. Despite the U.S. fiscal deficit continuously setting historical records, since May, the U.S. Treasury has issued guidance indicating that it will maintain the scale of bill and bond auctions unchanged for at least the next few quarters.