The TBAC Treasury supply estimate was cut sharply for the second and third quarters.
The Treasury Borrowing Advisory Committee (TBAC) released its revised Treasury financing estimates today. And they are remarkable.
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For the second calendar quarter the TBAC Treasury supply estimate was just $30 billion, net. The first estimate, issued in February had called for $83 billion. The government’s financing needs are always at their low in the second quarter thanks to annual tax collections in April. However, the reduction to just $30 billion is remarkable.
In a new wrinkle, the estimates no longer include specific month by month recommendations of bill issuance. They continue to show recommended coupon issuance. The Treasury rarely deviates from those recommendations. It has however, veered sharply away from bill issuance recommendations. We were previously able to track these changes and gauge their month to month impact. That is no longer possible without the monthly bill issuance tables.
Even more remarkable is the new estimate for the third quarter. Q3 is normally the weakest for tax collections. It therefore normally requires the heaviest Treasury issuance. Last year, net issuance in Q3 totaled $475 billion. The Treasury now forecasts net issuance of just $6 billion for Q3. That is truly remarkable, and bullish, all other things being equal.
TBAC Treasury Supply Estimate Cut Sharply But Of Course There’s a Catch
Everything else isn’t equal of course.
So about that estimate of $6 billion for this year’s Q3? Color me skeptical.
Indeed there’s a catch. The estimate includes the expectation that the Treasury will spend down its current cash hoard of $423 billion to just $85 billion at the end of the calendar third quarter. This is because the debt ceiling will eventually put an airtight lid on public issuance. That lid is a little porous at the moment, thanks to Treasury accounting tricks.
I have been warning that the Treasury might do this. By the same token, once Congress raises the debt ceiling, as it must, the piper will need to be paid. And it will be paid with a vengeance.
I’ll cover these issues in greater detail, with a forecast of what to expect and what to do about it, in the next Liquidity Trader Treasury update. First time subscribers, sign up for a trial subscription by 11:59 PM Friday, May 2 and get the first month free. Your first payment would be in 30 days. If you cancel within 30 days you’ll be charged nothing.