Quarterly Treasury Refunding Statement: Higher Borrowing Compared to Last Year
The United States is expected to borrow less over the next six months than it did over the same period last year — but there are signals that borrowing may increase in the months ahead. Those are two of the top findings in a new report by the U.S. Treasury Department, with important implications for our nation’s fiscal outlook.
What Is the Quarterly Refunding Process?
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 are watched closely by policymakers and market participants because they 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.
Borrowing Trends
A key element of the quarterly refunding process is for Treasury officials and TBAC members to consider both the size and composition of prospective Treasury offerings. According to the most recent guidance, the Treasury anticipates borrowing $860 billion over the next two quarters, covering April-June and July-September, which constitute the back half of fiscal year 2026. That would be $263 billion less debt than it issued during the same period last year. The Treasury expects to borrow less than in the previous period because, at that time, the government was replenishing its depleted cash balance stemming from a period of “extraordinary measures.” Treasury borrowing activity has stabilized for now because the ceiling was raised to $41.1 trillion by the One Big Beautiful Bill Act, yet the government still anticipates high borrowing levels due to structural deficits.
At present, the Treasury’s cash balance is ample and stable; however, TBAC did flag that current issuance projections indicate a $1.3 trillion funding shortfall over the next two fiscal years. In that event, the Treasury would increase the size of the securities it issues to close the funding gap and meet its cash balance and cash flow needs.
Looking back, the U.S. government has borrowed $2.3 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 11 of the last 15 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 increased the proportion of bills (maturities 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 has remained above that level since.
- 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 $94 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 GDP growth rebounded in Q2 of FY26 (2% annualized growth) after the government shutdown weighed down growth in the previous quarter (0.5% annualized growth).
- Treasury yields are up, though the United States is relatively outperforming other peer nations.
- TBAC noted that nearly all central banks of advanced nations are expecting interest rate increases, except for the United States.
- Dealers are expecting coupon prices to increase early in FY27 in advance of the projected shortfall in debt issuance.
- The Treasury is considering loosening its reserve requirements to generate returns on excess cash. The Treasury generally holds enough cash to fulfill a week of outflows, and the TBAC is examining whether that definition of “excess” is prudent. TBAC acknowledges that further study is needed.
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.
Photo by Anna Moneymaker/Getty Images
Further Reading
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The unsustainable national debt poses a risk to our economic future, and young Americans may have the most to lose.
The National Debt Can Crowd Out Investments in the Economy — Here’s How
Large amounts of federal debt could “crowd out” investments by the private sector, making the economy less productive and stunting wage growth.
The Fed Held Its Target Range For the Fourth Meeting in a Row but Interest Costs Remain High
High interest rates on U.S. Treasury securities increase the federal government’s borrowing costs.