Investment banks are coming together to express their belief that the borrowing needs of the U.S. government are likely to diminish throughout June. This forecast has eased some of the anxiety that plagued bond markets towards the end of last year.
On Monday, Treasury will reveal its revised forecast for first-quarter borrowing and provide a preliminary estimate for its second-quarter needs. The announcement will be followed by an auction schedule and additional details on Wednesday, coinciding with the Federal Reserve’s policy decision, which is expected to result in no action on interest rates.
Compared to the end of 2023, there is currently less concern surrounding the government’s upcoming announcements. Last October, the bond market was highly apprehensive about the government’s growing fiscal deficit and the Treasury’s fourth-quarter borrowing requirements.
During this time, there were doubts about who would purchase government debt and uncertainty regarding the Federal Reserve’s stance on interest rate hikes. However, economist Thomas Simons from Jefferies believes that the consensus now is that the Fed is finished with raising rates, reducing concerns about supply.
The worry began to surface in July when Treasury announced an astonishing estimate of $1.007 trillion for third-quarter borrowing in 2023. This announcement set off a cycle of anxiety leading up to the agency’s subsequent announcement for fourth-quarter borrowing on October 30, overshadowing the Fed’s meeting on October 31-November 1.
Fortunately, the fourth-quarter estimate came in below expectations at $776 billion, which alleviated concerns in the bond market.
Wall Street is now waiting to see if Treasury’s estimate of $816 billion borrowing needs for the current first quarter aligns with reality, as well as any insights into the second quarter.
Treasury’s First-Quarter Estimate to be Revised Downward
Experts at Deutsche Bank and Jefferies are forecasting a downward revision to the U.S. Treasury’s first-quarter borrowing estimate. Deutsche Bank expects the estimate to drop to $797 billion, $19 billion less than initially thought, while Jefferies projects a revision to $800 billion. Despite the discrepancy with Wall Street estimates, Jefferies acknowledges the uncertainty surrounding its prediction and emphasizes the anticipated boost in government revenue from April to June.
Lower Borrowing Needs Predicted for April-June
Deutsche Bank predicts that the Treasury’s borrowing needs will decrease to $472 billion for the April-June period. Meanwhile, Jefferies estimates borrowing of around $60 billion during this time, assuming a cash balance of $750 billion at the end of the second quarter.
Anticipation of Treasury Announcements
Following the release of U.S. inflation data, traders are eagerly awaiting next week’s Treasury announcements. The mild December PCE inflation reading had little impact on financial markets, with the S&P 500, Nasdaq Composite, and Treasury yields experiencing slight gains during late morning trading in New York.
Expectations of Lower Volatility in Rates Markets
Analysts at JPMorgan Chase & Co anticipate that the upcoming Treasury announcement will not generate as much volatility in rates markets as previous events. However, they acknowledge the widespread interest from market participants beyond Treasury finance professionals. JPMorgan predicts that the Treasury’s borrowing needs for the second quarter will decrease to $263 billion, assuming a cash balance of $750 billion to $775 billion from March to June. This figure would be lower than the revised estimate of $855 billion for the first quarter.