According to Blockworks, the Treasury Borrowing Advisory Committee (TBAC) has released its quarterly refunding announcement (QRA), which has garnered significant attention due to the current fiscal environment. The TBAC advises the Treasury on debt issuance strategy for the upcoming quarter. With interest rates no longer at zero and fiscal deficits rising, market participants are closely monitoring how the government plans to fund itself. The supply and demand dynamics of US Treasury yields are influenced by the amount of debt issued, particularly at the long end of the yield curve, which can impact market prices.
This week, the Treasury provided the last QRA before the upcoming election. The report includes projections for debt issuance for the next two quarters. For the period from October to December 2024, the Treasury aims to reduce the Treasury General Account (TGA) from $886 billion to $700 billion, with plans to issue $546 billion in net issuance. For January to March 2025, the target TGA balance is set at $850 billion, with net borrowing expected to reach $823 billion. This represents a significant increase in debt issuance, totalling an additional $277 billion over the next two quarters. The decrease in the TGA balance accounts for $150 billion of this increase.
The composition of the debt to be issued is also a critical aspect of the QRA. Treasury Secretary Janet Yellen has indicated that there will be no changes to the long-duration issuance composition in the coming quarters. This means that the dollar amount of issuance for maturities longer than one year will remain constant. Consequently, any increase in borrowing needs will be met by issuing more short-term debt, specifically Treasury bills (T-bills). Due to the planned TGA drawdown to $700 billion and subsequent increase to $850 billion, a substantial rise in T-bill issuance will be necessary to fund the Treasury.
The Treasury is forecasting an increase in the proportion of total net issuance that is T-bills, from 13% to 45%. Historically, the Treasury targets a long-term average of 15% to 20% of total debt being T-bills. This 45% weighting is likely an outlier and is expected to be reversed in the second quarter of 2025 when tax receipts reduce the need for T-bill issuance. However, with total Treasury debt already above the upper limit of their target range at 22%, there is concern about how long the Treasury can avoid surprising markets with changes in duration.
