Treasury Sees $194 Billion Drop In Borrowing Needs Due To SFP Program Roll Off, Over Half A Trillion In Financing Needs For Jan-Mar Quarter

Today, the Treasury issued its revised merkatble borrowing estimate. And while the last time the Treasury issued this forecast, it had expected a $431 billion need of marketable borrowing financings (while expecting a $454 billion total Financing need), this number has now plunged by $194 billion to $243 billion. But don't be fooled that this is due to an expectation that treasury revenues are suddenly going to pick up. Oh no. In fact, total Financing Needs have increased by $49 billion to $503 billion for one quarter! The only reason why the marketable borrowing estimate has plunged is due to the roll off of the SFP program, which will bring down EOQ cash from a previous estimate of $270 billion to $65 billion, a $205 billion decline in cash. In other words, the Treasury now sees adding $237 billion in marketable debt to the total December 31 debt which means that the US will be close to breaching the debt ceiling by the end of March even with the SFP program roll off. What is amusing is that the Treasury now expects financing needs in Q2 to plunge from $503 billion to $258 billion, which in turn will need $299 billion in marketable debt to be issued over the April-June time period. We are willing to write naked CDS, and sell the TVIX against this number being revised by at least 20% at the next forecast revision, some time in late April.

Table summarizing this adjustment:

Full press release:

Washington, D.C. -- The U.S. Department of the Treasury today announced its current estimates of net marketable borrowing for the January – March 2011 and the April – June 2011 quarters:

    * During the January – March 2011 quarter, Treasury expects to issue $237 billion in net marketable debt, assuming an end-of-March cash balance of $65 billion, which includes $5 billion for the Supplementary Financing Program (SFP). This borrowing estimate is $194 billion lower than announced in November 2010. The decrease in borrowing relates primarily to a lower SFP balance.
    * During the April – June 2011 quarter, Treasury expects to issue $299 billion in net marketable debt, assuming an end-of-June cash balance of $95 billion, which includes $5 billion for the SFP.

During the October – December 2010 quarter, Treasury issued $363 billion in net marketable debt, and ended the quarter with a cash balance of $343 billion, of which $200 billion was attributable to the SFP. In November 2010, Treasury estimated $362 billion in net marketable borrowing and assumed an end-of-December cash balance of $300 billion, which included an SFP balance of $200 billion. The higher cash balance resulted primarily from lower outlays.

Additional financing details relating to Treasury’s Quarterly Refunding will be released at 9:00 a.m. on Wednesday, February 2, 2011.