The US Treasury expects to borrow $618 billion in the fourth quarter, $10 billion less than it projected in August. Traders now turn to Wednesday's refunding plans for any hint of changes to auction sizes.
The US Treasury said on Monday it expects to borrow $618 billion in the fourth quarter, $10 billion less than its August projection. A higher-than-assumed starting cash balance drove the cut, partially offset by lower projected net cash flows.
Underlying borrowing needs rise
Strip out the benefit of that larger starting cushion, and the borrowing need is $24 billion above the August estimate. The estimate assumes a cash balance of $850 billion at the end of December.
Looking further ahead, Treasury projected borrowing of $800 billion for the first quarter of 2027, based on an end of March cash balance of $1 trillion.
Third-quarter borrowing topped projections
Treasury borrowed $742 billion in the third quarter and ended September with a cash balance of $984 billion. That was above its August projection of $739 billion, but $30 billion less than expected when excluding the higher-than-assumed end-of-quarter cash balance.
Auction sizes in focus
Treasury will detail its refunding plans on Wednesday, and traders will watch closely for any sign of changes to auction sizes in coming quarters. In August, the government said it continues to evaluate potential future changes to its coupon and floating-rate auction sizes, a shift from May, when it noted potential future increases.
That shift raised speculation that Treasury may eventually cut some longer-dated auctions and lean more on Treasury bills and short- and intermediate-dated coupons. If that happens, analysts see the 20- and 30-year auctions as the most likely to be reduced, with coupon increases concentrated in the 2- to 7-year sector.
Traders will also watch Treasury's buybacks, which are meant to support market liquidity. Treasury has increased its longer-dated buybacks to a maximum of $6 billion per operation from $2 billion.
Source: Investing.com (Reuters)
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