Treasury Department Reduces Q4 Borrowing Forecast Down To $776B, But Still Raises Eyebrows

The U.S. Treasury Department has lowered its estimate for federal borrowing in the fourth quarter to $776 billion, down from the previously predicted $852 billion.

Investors are breathing a sigh of relief with this cut, given their rising worries over the expanding fiscal deficit. However, even with this reduction, the forecasted amount remains an unprecedented borrowing figure for the calendar fourth quarter.

According to Bloomberg, one reason for this surprising decrease is the substantial deferred tax receipts from California and other states that received extensions because of natural disasters.

Treasury officials revealed that these tax receipts have influenced the overall borrowing projection, providing a silver lining to the fiscal situation.

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Jay Barry, co-head of US rates strategy at JPMorgan, told Bloomberg that Treasury's current auction schedule is not compatible to meet its financing needs, emphasizing the need for a comprehensive approach to address the funding gap in the coming years.

While the Treasury addresses the challenges of a federal deficit that has doubled in the fiscal year leading up to September, investors are anxiously awaiting the Treasury’s revised issuance plans, due out this Wednesday.

Bond Market Response

Despite the lower borrowing estimate, the bond market didn’t rally as expected on Monday. Yields on the 10-year benchmark rose by 4 basis points to reach 4.88%, while 30-year Treasury yields increased by 2 basis points to 5.04%.

The iShares 20+ Year Treasury Bond ETF TLT experienced a 0.4% drop in value on Monday.

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