US Treasury Projects A $13.9 Trillion Debt Balance At December 31, Anticipates Debt Ceiling Breach Some Time In February 2011

The Treasury has just released its most recent quarterly borrowing estimate for fiscal Q4 2010 and Q1 2011 (or the next two quarters in normal speak). The government now anticipates a funding need of $350 billion and $380 billion in the next two quarters. While the $350 billion number is a slight reduction from the prior estimate of $376 billion, historically the Treasury has been unduly and overly optimistic in determining its debt issuance requirements. With the June 30 total debt balance of $13.203 trillion, it means the Treasury itself now anticipates total debt at just under $14 trillion (or $13.93 trillion to be precise). This equates to about $13.88 trillion in debt subject to limit (which at last check was $14.3 trillion). Looks like the Treasury will not need to raise the debt ceiling before the midterm elections after all: perhaps this is what the market is celebrating today: nothing less than the latest and greatest example of news slightly better than a worst-case scenario. We also learn that, "during the April - June 2010 quarter, Treasury issued $344 billion in net marketable debt, and finished the quarter with a cash balance of $290 billion, of which $200 billion was attributable to the SFP.  In May, Treasury estimated $340 billion in net marketable borrowing and assumed an end-of-June cash balance of $280 billion, which included an SFP balance of $200 billion.  The increase in the cash balance related to higher net cash flows and net marketable borrowing." And with every new auction pushing the US debt further higher into "never repayable" territory, the Bid To Cover grows ever higher. And in fact, don't look now, but the last time the market was at 1,125, the 10 Year was just 45 bps higher than the current 2.96%, confirming that all is perfectly illogical with the world.

Additionally, based on the hidden rows (71-76) in the treasury's Sources and Uses excel file, the US will see a financing need of $430 billion in the January-March 2011 quarter: in other words the Debt Ceiling will be breached some time in mid-February 2011.

From the Treasury press release:

Treasury Announces Marketable Borrowing Estimates

To view the Sources and Uses Table, visit link below.

Washington, D.C. -- The U.S. Department of the Treasury today announced its current estimates of net marketable borrowing for the July – September 2010 and the October - December 2010 quarters:

  • During the July – September 2010 quarter, Treasury expects to issue $350 billion in net marketable debt, assuming an end-of-September cash balance of $270 billion, which includes $200 billion for the Supplementary Financing Program (SFP).  The borrowing estimate is $26 billion lower than announced in May 2010.  The decrease in borrowing relates primarily to lower outlays and a higher-than-announced beginning-of-quarter cash balance.
  • During the October - December 2010 quarter, Treasury expects to issue $380 billion in net marketable debt, assuming an end-of-December cash balance of $270 billion, which includes $200 billion for the SFP.

During the April - June 2010 quarter, Treasury issued $344 billion in net marketable debt, and finished the quarter with a cash balance of $290 billion, of which $200 billion was attributable to the SFP.  In May, Treasury estimated $340 billion in net marketable borrowing and assumed an end-of-June cash balance of $280 billion, which included an SFP balance of $200 billion.  The increase in the cash balance related to higher net cash flows and net marketable borrowing.

Additional financing details relating to Treasury's Quarterly Refunding will be released at 9:00 a.m. on Wednesday, August 4. 

And here is Goldman's (once again oddly spin-free) take:

MAIN POINTS:

1. The US Treasury Department estimates that its marketable borrowing will total $350bn in the July-September quarter, the last quarter of fiscal year (FY) 2011.  Three months ago, this estimate was $376bn.  The targeted cash balance at the end of this period remains unchanged at $270bn, of which $200bn is earmarked for the Supplemental Financing Program (SFP).  The agency’s preliminary estimate for Q4 borrowing is $380bn, with a continuing cash balance of $270bn.

2. While the Q3 figure is about $75bn less than we expected, the Q4 figure is quite a bit higher (about $150bn).  Some of this difference is probably seasonal in nature.  Nonetheless, having already cut the issuance of nominal coupons by 10% from its peak rate in May, we think Treasury officials will proceed more cautiously than before along this path.  Accordingly, we estimate the May refunding at a gross issuance of $74bn to redeem $37.7bn in maturing debt and raise $36.3bn in new cash.  We think this will be divided as follows: $34bn for the 3-year note, $24bn for the 10-year note, and $16bn for the 30-year bond.  The 3-year note is $1bn less than was issued a month ago and $4bn below the May offering; the 10- and 30-year issues are the same as in May.