News from the Quarterly Treasury Refunding Statement
Four times per year, the U.S. Treasury Department conducts what is known as the Quarterly Refunding process. This undertaking occurs about one month into a new quarter, and is a formal, multi-day consultation between an advisory committee — the Treasury Borrowing Advisory Committee (TBAC) — comprised of financial market participants and officials with the Treasury Department. The goal is to communicate with financial market participants on the outlook for U.S. Treasury debt issuance and U.S. debt market conditions.
As part of this process, the U.S. Department of the Treasury releases several publications containing information on historical and future borrowing activities. Those publications provide valuable insights into the nation’s fiscal situation, including how much the government expects to borrow, the composition of Treasury debt, and factors influencing the Treasury’s decision-making.
Key highlights from the most recent Quarterly Refunding include an increase in anticipated borrowing of $215 billion compared to the same period last year. That increased level of borrowing reflects a near-term need to replenish the Treasury’s cash balance, on top of the need to finance the United States’ growing deficits. Also noteworthy were participants’ concerns about reliance on short-term Treasury securities, which, combined with other factors, could present financing risks for the Treasury. More holistically, participants noted with concern recent movements in financial markets, which suggested erosion in confidence in U.S. debt as a safe haven for investors.
Quarterly Treasury Borrowing Estimates
According to the most recent guidance, the Treasury anticipates borrowing $1,597 billion over the next two quarters, covering the periods of July-September and October-December. This would be $215 billion more debt than it issued during the same period last year. The Treasury expects debt issuance to increase over the next quarter to replenish the Treasury’s General Account cash balance, which has dwindled throughout the past several months. This was due to the constraints of the statutory debt limit, which was raised by the One Big Beautiful Bill Act, requiring Treasury to draw down its cash balance and deploy extraordinary measures to continue to meet federal obligations. From October to December, Treasury expects debt issuance to return roughly to last year’s level.
Looking back, the U.S. government has borrowed $1.8 trillion over the past 12 months. If the Treasury’s expectations about the next two quarters prove accurate, the U.S. government will have borrowed more than $500 billion in nine of the last 12 quarters after doing so only six times in the prior two decades.
Short-Term Securities Have Been Slightly Higher as a Share of Treasury Borrowing Since the Middle of 2023
As borrowing has risen, the Treasury has generally been increasing the proportion of bills (maturity of one year or less) in its portfolio of marketable securities. That pattern reflects, in part, the response to economic disruptions necessitating rapid borrowing:
- From May 2015 through February 2020, bills as a share of outstanding debt generally hovered between 10 and 15 percent, with very few sudden fluctuations. In Octob
- From May 2015 through February 2020, bills as a share of outstanding debt generally hovered between 10 and 15 percent, with very few sudden fluctuations. In October 2015, bills as a percentage of Treasury’s outstanding securities were less than 10 percent, a multi-decade low.
- In February 2020, the pandemic drove unprecedented borrowing needs, and the proportion of bills jumped to 22 percent by April 2020. The total supply of bills doubled in one year, and the share remained above 20 percent until June 2021.
- From August 2021 to June 2023, the percentage of bills receded from the pandemic peak and sat between 15 and 18 percent.
- After the Fiscal Responsibility Act was enacted, which included a temporary suspension of the debt ceiling, the issuance of bills rose again to replenish Treasury’s cash reserves (which had been depleted during the debt limit impasse). The proportion of bills exceeded 20 percent in September 2023 and remains above that level today.
- Treasury intends to rely on shorter-tenor bills (4-, 6-, and 8-week) to replenish its cash balance instead of cash management bills.
Treasury Borrowing Insights
One of the documents released as part of the Quarterly Refunding process is a report compiled by the TBAC, which highlights significant changes in Treasury borrowing and outlines trends from the perspective of market participants. Some interesting areas to note:
- The 6-week T-bill has officially achieved benchmarks status, becoming part of the regular auction schedule.
- Some TBAC members noted that a heavy reliance on short-term issuances combined with a low level of reverse repurchase agreements, that is, a transaction where one investor buys a security from another with a deal in place to resell it back to the original seller at a predetermined price and time, could create funding stressors for Treasury.
- TBAC discussed the possibility that the GENIUS Act, legislation signed into law on July 18 that establishes the statutory framework for issuing a federally backed cryptocurrency called stablecoins, could generate additional demand for short-term Treasury securities.
- TBAC has begun to consider the enhancement and expansion of the Treasury’s buyback program, though nothing is imminent.
- The Treasury has noted the “highly unusual simultaneous decline in valuations for U.S. equities, Treasuries, and the U.S. dollar.” During today’s times of economic uncertainty, U.S. Treasuries have not been the “safe haven” investors typically seek.
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