Late yesterday 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 bln. This is down by almost half (43%) from the previous estimate of $486 bln.
The reprieve is largely technical in nature and a net $478 bln is projected to be borrowed in Q1 2010. In Q3 09, the US Treasury borrowed a net $393 bln. 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 bln from $200 bln.
However, while the Treasury's borrowing needs may be less, it means the Fed's reserve creation will be greater.
Tomorrow the US Treasury will announce its quarterly refunding needs. The market is anticipating the sale of some $80-$85 bln 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.