Quarterly Treasury Refunding Statement: Higher Borrowing Compared to Last Year
The United States is expected to borrow more over the next 6 months than last year, and that debt is being financed with greater reliance on short-term securities. Those are two top findings from a new report from the U.S. Treasury Department, with important implications for our nation’s fiscal outlook.
Four times per year, the Treasury conducts what is known as the Quarterly Refunding process. That undertaking occurs about one month into a new quarter, and is a formal, multi-day consultation between officials from the Treasury and the Treasury Borrowing Advisory Committee (TBAC), which is comprised of financial market participants. The goal is to foster dialogue between the private and public sectors on the outlook for U.S. Treasury debt issuance and U.S. debt market conditions.
As part of that process, the Treasury releases several publications containing information on historical and future borrowing activities. Those publications offer 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.
As part of the quarterly refunding process, Treasury officials and TBAC members consider both the size and composition of prospective Treasury offerings. Key highlights from the most recent Quarterly Refunding include an increase in anticipated borrowing of $249 billion compared to the same six-month period in the previous year. Additionally, the latest review describes a recent pattern of shorter-term treasuries becoming a larger part of the issuance strategy for financing U.S. obligations. The strategy contrasts with the Treasury’s approach to its portfolio in the prior decade, and offers relatively reduced costs, at the expense of greater exposure to volatility and interest-rate risk.
Higher year-over-year Borrowing
According to the most recent guidance, the Treasury anticipates borrowing $683 billion over the next two quarters, covering January-March and April-June, which constitute the middle half of fiscal year 2026. This would be $249 billion more debt than it issued during the same period last year. The Treasury expects to borrow more compared to the previous period because, at that time, the government was operating under “extraordinary measures” after the national debt reached the debt ceiling. Those measures include drawing down the Treasury’s General Account cash balance rather than borrowing to finance government activities. Now that the ceiling has been lifted to $41.1 trillion by the One Big Beautiful Bill Act, Treasury borrowing activity is expected to stabilize.
Looking back, the U.S. government has borrowed $2 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 10 of the last 14 quarters after doing so only six times in the prior two decades.
Short-Term Securities Make Up More of the Treasury’s Portfolio
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 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 the 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.
- In recent months, the Treasury has relied on shorter-term bills (4-, 6-, and 8-week) to replenish its cash balance instead of cash management bills.
- Treasury intends to maintain its current portfolio composition, which is more indexed towards short-term issuances than in previous years.
In other words, bill auctions have increased in nominal size relative to their own history and compared to other marketable securities. Throughout 2016, the 4-week bill issuance averaged $47 billion. So far in 2026, 4-week bills are averaging $101 billion per issuance, making it the largest security offering by the Treasury. By comparison, the 2-year and 10-year notes, and 30-year bond, other notable benchmark securities, have also increased in issuance size, but do not match the 4-week bill or bills generally in volume.
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:
- TBAC noted that the government shutdown caused a data disruption, particularly affecting inflation reporting. As a result, the April release of the consumer price index will likely show an artificially strong inflation reading.
- Treasury yields have been largely stable, though they were briefly unsettled by international market fluctuations, particularly in Japan’s bond market. Other commodities and currencies have been more volatile.
- TBAC noted two key economic indicators: job growth remains slow relative to other measures of economic activity, and inflation has been persistently elevated.
- On that note, TBAC discussed the impact of the recent inflation period on portfolio composition. Demand at auctions has remained robust overall; however, inflation has reduced the value of Treasury diversification.
- Looking ahead, TBAC recommended holding auctions stable for now, but a need may arise for increased coupon issuance in 2027. On that point, debate arose over whether to gradually increase issuance size or wait until a larger financing gap materialized before responding was more prudent.
TBAC’s Quarterly Refunding statements offer valuable insights into the United States’ borrowing outlook. As the national debt continues to rise, it will remain important to understand the implications for our ability to borrow to finance it.
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