U.S. Treasury Cuts Borrowing Estimates for Current Quarter — Evening Brief – 02.04.25
U.S. Treasury provided its most recent debt sources and uses forecast prior to Wednesday’s quarterly refunding announcement. The amended forecast reflects a modest decline in borrowing for the current quarter, with an estimate of $815 billion, down from the previous estimate of $822 billion. However, Treasury revised its debt issuance forecast for the quarter ending December 31 to $620 billion, up from $546 billion previously.
Treasury additionally disclosed a year-end cash balance of $722 billion, surpassing the anticipated figure of $700 billion. This cash balance was recorded just before the federal debt ceiling was reinstated.
Moving forward, the U.S. Treasury expects to raise only $123 billion in new debt in the second calendar quarter of 2025, which ends on June 30. Treasury has stated that the cash balances of $850 billion at the end of March and June assume the enactment of a suspension or rise in the debt ceiling.
However, if Treasury’s cash balance at the end of either quarter is lower than the assumed $850 billion, and assuming no changes in the forecast of fiscal activity, it expects that borrowing would be reduced by the corresponding amount.
As of last Thursday, Treasury’s cash balance was about $826 billion, nearing the target it aims to sustain by the conclusion of the quarter. As reported two weeks prior, the limit on the U.S. federal debt ceiling was reinstated just days before the inauguration of President Donald Trump. Should Congress partake in an extended deliberation regarding the elevation or suspension of the debt ceiling, the Treasury would be compelled to curtail the issuance of bills and exhaust its cash reserves.
As Bloomberg points out, some Treasury observers have suggested that the department may shift toward maintaining a smaller cash stockpile over time. However, current estimates do not reflect this potential shift. This change in approach would represent another reversal by Treasury Secretary Scott Bessent, who initially opposed tariffs but has seemingly conceded that they are necessary, despite potential inflation concerns.
Wrightson ICAP economist Lou Crandall is among those who have suggested the potential for Treasury to sustain a reduced currency reserve. Prior to the announcement, Crandall projected a borrowing requirement of $820 billion for the current quarter, anticipating an end-of-period cash balance of $850 billion.
Dealers largely anticipate Treasury’s latest refunding plans will remain unchanged. However, due to the large U.S. fiscal deficits, dealers foresee that increased sales of longer-maturity bonds will eventually be necessary. This could lead to a significant rise in yields.