“The Treasury’s decision to borrow a staggering $776 billion in the final three months of the year reflects the magnitude of economic challenges faced, as well as the government’s commitment to stimulate growth, support struggling industries, and ensure stability in these unprecedented times.”
The U.S. government’s borrowing needs are expected to decline slightly in the last quarter of 2023 compared to the previous quarter, which could have significant implications for the global bond market. The U.S. Department of the Treasury announced on Monday that it plans to borrow $776 billion, lower than the $1.01 trillion borrowed in the July-through-September period, which was the highest ever for that quarter.
This borrowing level came in below Wall Street expectations, with JPMorgan Chase strategists predicting it to be around $800 billion. When the Treasury announced its increased borrowing needs in July, it triggered a frenzy in the bond market, resulting in yields reaching their highest levels since the 2007 global financial crisis. While stocks experienced some losses, they remained largely positive after the announcement, and Treasury yields mostly rose.
The impact of higher yields has been a concern for markets, and combined with the government’s borrowing needs and the Federal Reserve’s restrictive policy, it has intensified those concerns. The Treasury attributed the lower borrowing needs to higher receipts, although they were partially offset by increased expenses.
Looking ahead, the Treasury expects to borrow $816 billion in the January-through-March period, the government’s fiscal second quarter. This figure surpassed Wall Street estimates, with JPMorgan previously anticipating $698 billion. The record for quarterly borrowing occurred during the April-through-June period in 2020, when borrowing reached nearly $2.8 trillion at the height of the early Covid-19 pandemic.
The Treasury also stated its intention to maintain a $750 billion cash balance for both quarters. Market participants will be closely watching the Treasury’s refunding announcement on Wednesday, which will provide details about the size of auctions, the duration of bonds being issued, and their timing. Additionally, the Federal Reserve’s two-day policy meeting will conclude on the same day, with expectations that the central bank will keep interest rates unchanged.
This announcement comes 10 days after the government revealed that the fiscal 2023 budget deficit is projected to be approximately $1.7 trillion, an increase of around $320 billion from the previous year. The accompanying economic summary indicated strong growth and cooling inflation, although it remains above the Federal Reserve’s target. However, the statement also suggested that growth is likely to decelerate significantly, with a projected 0.7% growth in the fourth quarter and just 1% for the entirety of 2024.
Overall, the Treasury’s announcement of lower borrowing needs provides some relief to the bond market, which has been grappling with concerns about rising yields. Market participants will continue to closely monitor future developments, including the Treasury’s refunding announcement and the Federal Reserve’s policy decision.