United States: Slow progress in the structural reform of fiscal funding
2025-05-02
■ The U.S. Treasury Department needs to restore its cash balance due to the government debt ceiling issue, and has raised the amount of funds raised in the April-June quarter
■ The structure of the issuance period of national debt remains unchanged, and the instability of long-term interest rates has caused the conception of Minister of Finance Bessent to miscalculate
The U.S. Treasury Department announced the Marketable Borrowing Estimates on April 28. It plans to raise $514 billion in the April-June quarter and $554 billion in the July-September quarter. Among them, the amount raised in the April-June quarter has been significantly increased from the $123 billion announced in February to the current value. The cash balance at the end of March was $406 billion, a significant decrease from the $722 billion at the end of December 2023. The original plan to restore the cash balance to $850 billion will be postponed until after the end of June. As the federal debt is close to the statutory limit, the U.S. Treasury Department has maintained operations through special accounting measures to use cash balances for financing. Therefore, to restore the cash balance that was reduced in the January-March quarter, it will increase market financing efforts. On March 14, it was announced that the "debt suspension period" would be extended to June 27. If legislative measures such as the increase or temporary suspension of the debt ceiling are delayed, the cash balance of the U.S. Treasury may further decrease, and the recovery progress may also be delayed. Although income tax and corporate tax payments in the April-June quarter will provide support for the use of funds, the U.S. Treasury said that it will update the duration of special measures in early May based on tax estimates.
According to the plan, the Quarterly Refunding Statement for the May-July quarter, released on April 30, showed that the issuance of interest-bearing Treasury bonds of all maturities was the same as the February-April quarter. The statement also mentioned: "The Treasury expects that the auction scale of fixed-rate bonds and floating-rate bonds will remain at least at the current level for at least the next several quarters," indicating that the issuance scale of the May-July quarter will continue after August. Before taking office, Treasury Secretary Bessent criticized the Treasury issuance policy of former Treasury Secretary Yellen, which used short-term debt to make up for the fiscal deficit, and stated that he planned to adjust the Treasury issuance period structure to increase the issuance of long-term Treasury bonds. Against this backdrop, the market is paying close attention to future changes in guidance related to Treasury bond issuance. However, this is the second quarterly Treasury bond issuance plan released since he took office, and there has been no revision to the guidance, indicating that the possibility of maintaining the current issuance period structure at least within the year has further increased.
Since the details of the "reciprocal tariff" were announced in early April, the term premium in the U.S. Treasury market has shown a clear expansion trend, becoming an obstacle to the stability of long-term interest rates in the United States. In this case, increasing the issuance ratio of long-term and ultra-long-term Treasury bonds is likely to further promote the expansion of the term premium, gradually breaking down the idea of Treasury Secretary Bessent. The United States has not yet gotten rid of the structural problem of frequent large-scale refinancing in short cycles. Against the backdrop of weakening interest in U.S. bonds by overseas investors, structural reforms face higher obstacles.
■ The structure of the issuance period of national debt remains unchanged, and the instability of long-term interest rates has caused the conception of Minister of Finance Bessent to miscalculate
The U.S. Treasury Department announced the Marketable Borrowing Estimates on April 28. It plans to raise $514 billion in the April-June quarter and $554 billion in the July-September quarter. Among them, the amount raised in the April-June quarter has been significantly increased from the $123 billion announced in February to the current value. The cash balance at the end of March was $406 billion, a significant decrease from the $722 billion at the end of December 2023. The original plan to restore the cash balance to $850 billion will be postponed until after the end of June. As the federal debt is close to the statutory limit, the U.S. Treasury Department has maintained operations through special accounting measures to use cash balances for financing. Therefore, to restore the cash balance that was reduced in the January-March quarter, it will increase market financing efforts. On March 14, it was announced that the "debt suspension period" would be extended to June 27. If legislative measures such as the increase or temporary suspension of the debt ceiling are delayed, the cash balance of the U.S. Treasury may further decrease, and the recovery progress may also be delayed. Although income tax and corporate tax payments in the April-June quarter will provide support for the use of funds, the U.S. Treasury said that it will update the duration of special measures in early May based on tax estimates.
According to the plan, the Quarterly Refunding Statement for the May-July quarter, released on April 30, showed that the issuance of interest-bearing Treasury bonds of all maturities was the same as the February-April quarter. The statement also mentioned: "The Treasury expects that the auction scale of fixed-rate bonds and floating-rate bonds will remain at least at the current level for at least the next several quarters," indicating that the issuance scale of the May-July quarter will continue after August. Before taking office, Treasury Secretary Bessent criticized the Treasury issuance policy of former Treasury Secretary Yellen, which used short-term debt to make up for the fiscal deficit, and stated that he planned to adjust the Treasury issuance period structure to increase the issuance of long-term Treasury bonds. Against this backdrop, the market is paying close attention to future changes in guidance related to Treasury bond issuance. However, this is the second quarterly Treasury bond issuance plan released since he took office, and there has been no revision to the guidance, indicating that the possibility of maintaining the current issuance period structure at least within the year has further increased.
Since the details of the "reciprocal tariff" were announced in early April, the term premium in the U.S. Treasury market has shown a clear expansion trend, becoming an obstacle to the stability of long-term interest rates in the United States. In this case, increasing the issuance ratio of long-term and ultra-long-term Treasury bonds is likely to further promote the expansion of the term premium, gradually breaking down the idea of Treasury Secretary Bessent. The United States has not yet gotten rid of the structural problem of frequent large-scale refinancing in short cycles. Against the backdrop of weakening interest in U.S. bonds by overseas investors, structural reforms face higher obstacles.