US Treasury To Borrow $243B More This Spring: Dollar Climbs, Stocks Trim Gains

The U.S. Treasury Department has revised its marketable borrowing expectations upward for the April-June quarter of 2023, increasing the figure to $243 billion from an earlier estimate of $202 billion.

This adjustment, driven by lower-than-predicted cash receipts, had sparked some market reactions by the end of the session Monday.

What happened: The U.S. Treasury now expects to borrow $243 billion through the issuance of marketable debt securities, according to an official press release on Monday. That marks an increase of $41 billion from the prior estimates.

In addition, the department provided an update on its Q1 activities, noting that it borrowed $748 billion in net marketable debt and concluded the quarter with a cash balance of $775 billion. These figures compare favorably to previous forecasts, with the borrowing amount being $12 billion less and the cash balance $15 billion higher than expected at the end of Q4 2023.

Why This Matters: The increase in borrowing requirements, though seemingly minor at $41 billion, hints at potential larger fiscal challenges for the U.S. government.

The main concern for markets and policymakers is the impact of a larger fiscal deficit. As the Treasury issues more bonds to cover this deficit, the market must absorb an increased supply at a time when the Federal Reserve is reducing its holdings of U.S. government debt.

Market reactions: Following the announcement, immediate market reactions included a marginal rise in Treasury yields, a stronger greenback, and a brief decline in stock prices.

• The S&P 500, as tracked by the SPDR S&P 500 ETF Trust SPY, saw a quick drop of nearly 25 points shortly after the release, although it later regained some of the losses.
• The U.S. dollar index, as measured by the Invesco DB USD Index Bullish Fund ETF UUP, marginally increased by 0.1%.
• The yield on 10-year Treasury notes also ticked upwards, reflecting heightened concerns over increased supply and borrowing costs.

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