The U.S. Treasury said Monday it now expects to borrow $739 billion in the third quarter, a $68 billion increase from its May projection. The department attributed the uptick primarily to weaker projected cash flows that were only partially offset by a higher-than-assumed opening cash position.
Without the benefit of the raised starting cash balance, the Treasury said borrowing needs for the third quarter would be $87 billion higher than the May estimate. The quarterly refunding statement released alongside the update assumes the Treasury will hold a cash balance of $950 billion at the end of September.
Looking further ahead, the Treasury projected net borrowing of $628 billion for the fourth quarter. That projection is built on an assumed year-end cash balance of $850 billion.
The department also reported its second-quarter activity, saying it borrowed $190 billion in the period and finished June with a cash balance of $919 billion. The end-of-June cash position was $1 billion above what the Treasury had projected in May. The department noted that, when excluding the benefit of the higher-than-assumed end-of-quarter cash balance, that $190 billion of borrowing was $18 billion less than expected.
Treasury officials plan to provide full details of their refunding plans, including auction sizes, on Wednesday. Market participants will be watching those announcements for any indication that the department intends to increase reliance on longer-dated debt in coming quarters.
At the same time, shifting market conditions are influencing investor attention. Oil prices have risen as the conflict between Israel and Iran has re-intensified, a development the Treasury said has deepened concerns about already-elevated inflation. Those dynamics have pushed longer-dated Treasury yields to multi-year highs, a move traders are monitoring in the context of forthcoming debt issuance and auction sizing.
Context and implications
The revised borrowing path reflects the interplay between cash-flow forecasts and balance-sheet management. A larger starting cash cushion reduced the net increase in borrowing needs, but the underlying weaker cash flow projections still required the Treasury to raise its Q3 borrowing estimate materially.