Debt-Ceiling Saga Puts the Treasury’s Financing Estimates Under Scrutiny
The US Treasury’s quarterly financing estimates due next week will be closely watched to gauge the department’s view on how the debt-ceiling drama will unfold.
The Treasury on Monday will release estimates for federal borrowing and cash balances through March and the key April-June period as it includes the tax collection deadline and the estimated end of measures used to remain under the debt ceiling. Treasury Secretary Janet Yellen last week informed Congressional leadership that Treasury has deployed a series of special measures to prolong its borrowing authority under the cap.
The Treasury’s financing and cash balance estimates help strategists determine how much bill supply they should expect, which is especially challenging during the debt-ceiling episode when the swings in supply are expected to be steep and swift. A higher cash balance could hint at a resolution to the debt ceiling and a deluge of T-bills, which investors have been demanding for years. But a lower level could indicate analysts should be penciling in more cuts and a prolonged standoff over the cap.
While the forecasts have a history of being wildly inaccurate, this time may be different as the current debate in Congress could prompt a more conservative approach. Still, Mark Cabana, head of US interest rates strategy at Bank of America Corp., is skeptical given the track record.
“Treasury has to be somewhat delicate about the signals that they send around the cash balance and they don’t want to send a signal that suggests the outcome of the debt ceiling one way or the other,” Cabana said. “The market knows that and will take those estimates with a grain of salt and probably discount them more so than usual, even though Treasury has a history of not being accurate when it comes to the cash balance.”
Wall Street strategists in recent quarters have been more vocal about what they consider to be Treasury’s inaccurate forecasts, especially after the last round when it was evident the government was closing in on the $31.4 trillion limit and would need to take actions to remain under the limit. The cash balance was about $447 billion on Dec. 30, versus Treasury’s estimate of $700 billion, a roughly $253 billion miss.