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By Kevin Flanagan, WisdomTree Investments
Special to the Financial Independence Hub
I’ve written a couple of posts about the debt ceiling debate over the last few weeks, but let’s move past that topic and assume the U.S. government will be able to resume its borrowing needs in full, come the fourth quarter. (Editor’s Note: On Thursday, President Trump struck a deal with Democrat leaders to raise the debt limit and finance the Government until mid-December.)
What will investors find when Treasury has the ability to come to market with its full arsenal of t-bill and coupon issuances? The latest press briefing from the nation’s debt managers reminded me of the scene from the movie National Lampoon’s Vacation when Cousin Eddie asks Clark, “Could you maybe spare a little extra cash?”
The Details
For the period of July through September, Treasury estimates it will borrow $96 billion in net marketable debt, but its financing requirement will then ramp up to a hefty $501 billion in the fourth quarter. Remember, the calendar’s fourth quarter is actually the first quarter of fiscal year (FY) 2018. To put the fourth quarter number into perspective, the figure would be more than the projected $426 billion for all of FY 2017 combined, underscoring the added burden for the upcoming quarter.
The “Whys”
What’s causing such a huge increase in the government’s borrowing needs? First, the underlying budget deficit will need to be addressed. For the record, thus far in FY 2017, the red ink total has come in at -$523 billion through June, leaving one-quarter of the current fiscal year still remaining. For FY 2018, the Office of Management and Budget is projecting the deficit to come in at -$589 billion, up $149 billion from the prior estimate. Second on the list is Treasury’s goal to lift its quarter-end cash balance back to a more “normal” level of $360 billion for the end of December.
The debt managers foresee their September quarter-end balance dropping down to a low of $60 billion, compared to $353 billion a year ago. This drawdown reflects outlays that will be needed as a result of the stagnant debt ceiling. Along those lines, Treasury stated that it “expects to be able to fund the government through the end of September.”
The Final Piece
