Treasury Slashes Q4 Borrowing Plans

Late Monday, the US Treasury announced a dramatic cut in its anticipated borrowing requirements for this quarter. The net borrowing is expected to now be near $276 billion, down by almost half (43%) from the previous estimate of $486 billion.

The reprieve is largely technical in nature and a net $478 billion is projected to be borrowed in Q1 2010. In Q3 '09, the US Treasury borrowed a net $393 billion. The smaller borrowing requirement in this quarter is a consequence of the Treasury's decision to cut back its Supplementary Financing Program (SFP), under which it sold bills for the Federal Reserve. However, the Treasury's debt sales are capped by the congressionally imposed debt ceiling. The SFP was cut to $15 billion from $200 billion.

However, while the Treasury's borrowing needs may be less, it means the Fed's reserve creation will be greater.

Wednesday the US Treasury will announce its quarterly refunding needs. The market is anticipating the sale of some $80-$85 billion of notes and bonds (3 year, 10 year and 30 year).

Contacts report US Treasury officials have been discussing changing the inflation protected securities (TIPS) to include a 30-year instrument, which may be introduced at the expense of the 20-year.

Disclosure: No positions

Comments

[Mad Hedge F...:]

ljs I know what keeps Obama awake at night. Let’s say we spend our $2 trillion in stimulus and get a couple of quarters of weak growth. Then once the effects of the stimulus wear off, we slip back into a deep recession, setting up a classic “W.” Unemployment never does stop climbing. This happened to Roosevelt in the thirties. So congress passes another $2 trillion reflationary budget. Everybody gets wonderful new mass transit upgrades, alternative energy infrastructure, and bridges to nowhere. But with $4 trillion in spending packed into two years, inflation really takes off. The bond market collapses, the dollar tanks big time, gold goes ballistic to $5,000, and silver explodes to $50. Ben Bernanke has no choice but to engineer an interest rate spike, taking the Fed funds rate up to a Volkeresque 18%. Housing, having never recovered, drops by half again. This all happens in the 2012 election year. Obama is burned in effigy, a Mormon is elected president, and the Republicans, reinvigorated by new leadership, retake both houses of congress. We invade Iran. Crude hits $500. This is not exactly a low probability scenario. Remember Jimmy Carter? This is why junk bond yields are still stubbornly high at 12.5%, and credit default swaps live at lofty levels. Are the equity markets pricing in this possibility? No chance. The risk of Armageddon is still out there. Personally, I give it a one in three chance. Pass the Xanax.

Nov 03 11:29 AM

[cstauffer:]

Wow! That might have the makings of a movie. Throw in a couple of conspiracies and a Jack Bauer character or two and you have a blockbuster. :)


On Nov 03 11:29 AM Mad Hedge Fund Trader wrote:

> ljs I know what keeps Obama awake at night. Let’s say we spend our
> $2 trillion in stimulus and get a couple of quarters of weak growth.
> Then once the effects of the stimulus wear off, we slip back into
> a deep recession, setting up a classic “W.” Unemployment never does
> stop climbing. This happened to Roosevelt in the thirties. So congress
> passes another $2 trillion reflationary budget. Everybody gets wonderful
> new mass transit upgrades, alternative energy infrastructure, and
> bridges to nowhere. But with $4 trillion in spending packed into
> two years, inflation really takes off. The bond market collapses,
> the dollar tanks big time, gold goes ballistic to $5,000, and silver
> explodes to $50. Ben Bernanke has no choice but to engineer an interest
> rate spike, taking the Fed funds rate up to a Volkeresque 18%. Housing,
> having never recovered, drops by half again. This all happens in
> the 2012 election year. Obama is burned in effigy, a Mormon is elected
> president, and the Republicans, reinvigorated by new leadership,
> retake both houses of congress. We invade Iran. Crude hits $500.
> This is not exactly a low probability scenario. Remember Jimmy Carter?
> This is why junk bond yields are still stubbornly high at 12.5%,
> and credit default swaps live at lofty levels. Are the equity markets
> pricing in this possibility? No chance. The risk of Armageddon is
> still out there. Personally, I give it a one in three chance. Pass
> the Xanax.

Nov 04 11:34 AM