US Treasury to borrow $760 billion in Q1, lower than forecast

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - The U.S. Treasury on Monday said it expects to borrow $760 billion in the first quarter, $55 billion below the October estimate primarily due to forecasts for increased net fiscal flows and higher cash balance.

The first-quarter financing estimate assumes a cash balance of $750 billion at the end of March, the Treasury said in a statement.

The benchmark U.S. 10-year Treasury yield dropped to a more than a one-week low of 4.059% after the announcement. It was last down 9.2 basis points (bps) at 4.068%.

"The market moved on this information which just shows you how sensitive it is to refinancing estimates," said Gennadiy Goldberg, head of U.S. rates strategy at TD (TSX:TD) Securities in New York.

"But historically these estimates don't mean very much except for potentially, marginally less bill supply in the short term."

The Treasury also announced it expects to borrow $202 billion in the second quarter, as it projects a cash balance of $750 billion at the end of June.

It also said in the fourth quarter of 2023, the Treasury borrowed $776 billion in net marketable debt, in line with estimates released in October. It ended the fourth quarter with a cash balance of $769 billion.

The Treasury explained that the end-December cash balance was $19 billion higher than the October forecast due to other sources of financing such as the lower-than-estimated discount on marketable borrowing.

"The Treasury has already built sufficient cash balance," TD's Goldberg said.

"Now it's a question of: to what extent the Treasury will be or will not be increasing auction sizes. I think the market is thinking, reading this report, that the Treasury can slow down the pace of auction size increases but I don't know if that's the right takeaway at this point."

The Treasury will announce its refunding news, which will outline the upcoming auction sizes for bill, notes and bonds, on Wednesday at 8:30 a.m. ET (1330 GMT). It will likely announce a final quarter of nominal coupon auction size increases as the government's financing needs remain high.

TD projects funding requirements to rise gradually to $1.85 trillion this year and $1.9 trillion next year, as it anticipates fiscal deficits increasing in the coming years.

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Thomas Simons, U.S. economist at Jefferies, wrote in a research note that he expects Treasury to announce a $121-billion package, higher than previous auctions. He anticipates $54 billion in three-year notes, $42 billion in 10-year debt and $25 billion in 30-year bonds. The auctions, he said, will take place on Tuesday, Wednesday and Thursday next week.