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The U.S. Treasury more than quadrupled its borrowing estimate for the quarter through June, and expects to need some $1.3 trillion over the second half of the fiscal year to help pay for a raft of fresh pandemic-relief spending.
The Treasury’s projections, released in Washington Monday, incorporated the impact of President Joe Biden’s $1.9 trillion pandemic-relief bill, enacted in March. In a February outlook, the Treasury left out any guess on such spending.
Both spending and revenues have been challenging for the Treasury and private-sector analysts alike to project during the pandemic. The borrowing figure for the three months through June came within the broad range of strategists’ estimates.
Among the Treasury’s projections:
- $463 billion in borrowing April through June
- $800 billion for the cash balance at the end of June to $800 billion. That’s $300 billion more than previously seen
- $821 billion in borrowing for the three months through September
- $750 billion for the cash balance at the end of September
The Treasury has been steadily working down its cash balance from a record level last year, after accumulating that extra firepower to give itself flexibility to deal with any pandemic-related spending contingencies.
Before Monday’s release, Wall Street strategists had been speculating the Treasury would need to return the cash balance to where it had been when Congress suspended the federal debt limit was suspended -- roughly $120 billion to $130 billion -- unless lawmakers lifted or suspended the ceiling again.
On Monday, the Treasury said it assumed a cash balance of $450 billion at the end of the current debt-limit suspension period on July 31. Officials built an assumption of an increase or suspension of the ceiling into their outlook for $750 billion in cash for the end of September.
After penciling in estimates during 2020 for what might get approved by Congress in terms of pandemic-relief spending, the Treasury by February essentially abandoned the effort, given the challenges involved.
“These projections are difficult to rely on,” Jefferies analysts Thomas Simons and Aneta Markowska wrote in a note Monday. “There is a significant amount of risk surrounding the size and pacing of tax receipts during the quarter and outlays related to the stimulus as well. These projections should be viewed in the context that the outlook for financing changes on a daily basis.”
The latest wave of stimulus payments sent the U.S. federal budget deficit to a record in the first half of the fiscal year that began on Oct. 1, more than double the previous year.
Over that same period, the Treasury borrowed $998 billion in the form of marketable debt securities, the department’s data show. The $1.3 trillion in borrowing needs in the second half of the fiscal year, through September, cover a bigger pandemic spending package than in the first half -- which incorporated a $900 billion plan enacted in December.
Monday’s borrowing estimates precede the Treasury’s so-called quarterly refunding announcement at 8:30 a.m. New York time on Wednesday, when the department releases plans for the sizes of auctions of longer-term debt, along with any shifts in its issuance strategy.
A majority of Wall Street dealers predict the Treasury will keep note and bond auction sizes unchanged for the second straight quarter. Yet most also foresee the Treasury sometime later this year beginning to whittle down coupon-bearing debt auctions, given that funding needs are peaking.