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The U.S. Just Borrowed $488 Billion, a Record High for the First Quarter

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Posted on : May 2, 2018

  • Treasury sees stage set for growth pickup over near term
  • CBO sees U.S. budget deficit rising to $1 trillion by 2020

U.S. Treasury Secretary Steven Mnuchin said he’s unconcerned about the bond market’s ability to absorb rising government debt after his department said it borrowed a record amount for the first quarter.

“It’s a very large, robust market — it’s the most liquid market in the world, and there is a lot of supply,” he said in a Bloomberg TV interview on Monday. “But I think the market can easily handle it.”

Earlier on Monday the Treasury said net borrowing totaled $488 billion from January through March, a record for that period and about $47 billion more than it had previously estimated, according to a statement released in Washington. The end-of-March cash balance was $290 billion, compared with an initial estimate of $210 billion.

“By definition supply and demand will equate,” Mnuchin said. “I’m not concerned about that. I think that there are still a lot of buyers for U.S. Treasuries,” he said when asked about the risks of reduced demand for Treasuries and increased supply.

Moving Back Up

The Treasury in the first three months of 2018 borrowed the most since 2008

Source: U.S. Treasury Department, Bloomberg

The Treasury’s debt-management plans were complicated earlier this year by a political fight that was resolved when lawmakers agreed to suspend the federal debt limit in a two-year budget agreement in February.

The U.S.’s need to issue more Treasuries is expected to grow as the fiscal picture deteriorates. The budget deficit widened to $600 billion halfway through the fiscal year, as spending increased at three times the pace of revenue growth in the October-to-March period, according to Treasury figures released earlier this month.

Tax and spending measures approved by Congress and President Donald Trump are expected to push the budget gap to $804 billion in the current fiscal year, from $665 billion in fiscal 2017, and then surpass $1 trillion by 2020, according to the Congressional Budget Office.

In an accompanying statement about the state of the economy, the Treasury said Monday that tax changes are “poised to underpin near-term consumption and investment” and “the stage is set for a pick-up in growth over the near term.”

The Treasury expects to issue $75 billion in net marketable debt from April through June, assuming the cash balance continues to rise by the end of June to $360 billion, the department said. The April-June borrowing estimate is $101 billion less than its previous forecast, which was partly driven by the higher cash flows, the department said.

In the July-September quarter, the Treasury plans to borrow a net $273 billion, assuming a cash balance of $350 billion by the end of that period.

This quarter’s revised borrowing outlook met expectations, according to Jefferies Managing Director Ward McCarthy and Senior Vice President Thomas Simons. They see the sizes of 2- and 3-year note auctions rising by $2 billion per month, and the five-, seven-, 10- and 30-year auctions increasing by a monthly $1 billion each. The fixed-rate notes will probably climb by $2 billion each in the quarter, McCarthy and Simon said in a research note.

Treasury will announce details on its quarterly refunding plan on May 2.

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