Treasury’s quarterly financing estimate came in below the headline figure tipped three months ago, in what the market should read as good news.
Janet Yellen expects to borrow $760 billion in privately-held net marketable debt during the January through March quarter, $55 billion less than the late-October projection.
Markets were on tenterhooks ahead of the refunding announcement this week, and while the lower estimate is a good start, the details of the funding mix, to be released on Wednesday morning, will be pivotal.
Treasury cited “projections of higher net fiscal flows and a higher beginning of quarter cash balance” for the cut to aggregate borrowing.
Again, this is good news. There’s an argument to be made that in a week crowded with top-tier macro data, policy decisions, key earnings reports and geopolitical headlines with market-moving potential, the Treasury financing estimate and refunding details actually constitute the most important event.
The lower the borrowing estimate the better. Oversupply concerns were the proximate cause of the late-summer bond rout which saw the term premium reprice rapidly out of negative territory, catalyzing a vexing bear steepener to the detriment of equities.
Yellen read the writing on the wall. On October 30, Treasury slashed its quarterly borrowing estimate for the October to December quarter, setting the stage for the refunding details to show smaller-than-expected coupon increases two days later. Bonds and stocks went on to rally virtually uninterrupted into year-end.
Monday’s estimate thus marks two quarters in a row that the financing projection was cut from the original forecast. If Treasury were to again undershoot expectations for coupon increases on Wednesday, Yellen will have done her part to green light additional upside for equities (what’s bullish for bonds is likewise bullish for valuations, or at least protective of stretched multiples).
US yields fell to session lows after the release of borrowing estimate Monday, which also included a $202 billion projection for the April to June quarter.
2023’s larger-than-expected federal deficit was in large part due to lower capital gains taxes after the bear market in 2022. Perhaps 2024 will enjoy a smaller-than-expected deficit due to higher cap gains after bull 2024? Only speculation, I haven’t hunted down the data.
which continues to reinforce the brilliance of the end of 2023 Yellen / Powell tag team…state budgets, particularly blue states that are capital gains dependent, as well as pension funds, also have benefited significantly imho…
I like her style- under promise and over deliver!
How will the financial press explain the late rally in the S&P and Dow? Something like “Investors reacted to the plunge in interest rates….” Well, I suppose that’s correct in the sense that algo-driven traders can be called “investors”.
Ah well, that’s the new investing reality so there’s no use in whining about it.
Last years Q2 borrowing was $657 million – did they have a 3rd grade math student come up with the Q2 2024 estimate for $202 million?
Billion. With a “b.” And there’s math behind it, yes. Also, if that figure was too far away from what Wall Street expected, bonds would’ve reacted accordingly, although honestly, there’s really no telling right now. The Fed’s decision on the QT taper will play a role, and there’s a tax bill pending too. It’s a shot in the dark. But they had to say something.