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Tags: Treasury | Borrowing | Cash | Balance

Treasury Trims Borrowing Needs as Cash Balance Rises

Monday, 04 February 2013 04:19 PM EST

The U.S. Treasury Department lowered its net borrowing estimate for the current quarter by $11 billion, reflecting a higher cash balance early in the year.

The Treasury decreased its projected borrowing needs for January through March to $331 billion, the department said in a statement Monday in Washington. Officials see net borrowing of $103 billion in the quarter starting April 1. In the three-month period that ended Dec. 31, the Treasury borrowed $297 billion. The estimates set the stage for the department’s quarterly refunding announcement on Wednesday.

“The decrease in borrowing relates to the higher beginning-of-quarter cash balance partially offset by higher outlays and lower receipts,” the Treasury said of the current quarter.

The previous estimate was made in October when the department assumed an end-of-2012 cash balance of $60 billion, which the department said today was “driven primarily by higher receipts and lower outlays.” The Treasury said its forecasts assume a cash balance of $30 billion for the end of the current quarter.

Cash Balances

“Part of the higher cash balances were the result of taxes paid on income pulled forward into 2012 in order to avoid potentially higher tax rates resulting from fiscal cliff negotiations,” Thomas Simons, a government debt economist at Jefferies Group Inc. in New York said. “The first of the year is especially difficult to forecast due to the uncertainty surrounding the timing of tax refund payments and income tax receipts.”

The economy in the U.S. unexpectedly came to a standstill in the fourth quarter as the biggest plunge in defense spending in 40 years swamped gains for consumers and businesses.

Gross domestic product dropped at a 0.1 percent annual rate, weaker than any economist forecast in a Bloomberg survey and the worst performance since the second quarter of 2009, when the world’s largest economy was still in the recession, Commerce Department figures showed Jan. 30 in Washington.

The Treasury said Monday its forecasts assume a cash balance of $60 billion at the end of the April-to-June period.

Debt Limit

The Senate voted Jan. 31 to send legislation suspending the U.S. debt limit for three months to President Barack Obama, temporarily removing the risk of a government default from fiscal negotiations.

The measure, crafted by House Republicans, will lift the government’s $16.4 trillion borrowing limit until May 19.

The Treasury Department had previously said it expected to run out of emergency measures to prevent a breach of the debt limit between the middle of this month and early March.

The debt limit has been periodically raised since its creation in 1917, when Congress and President Woodrow Wilson authorized the Treasury to issue long-term securities to help finance entry into World War I.

Before this month’s vote, Congress raised or revised the limit 79 times since 1960, including 49 times under Republican presidents, according to the Treasury Department.

The last time Congress fought over raising the ceiling, Obama signed an increase on Aug. 2, 2011, the day that Treasury warned U.S. borrowing authority would expire. Standard & Poor’s cut the nation’s credit rating.

Still, U.S. Treasury bond investors -- who most directly bear the risk of any government default -- haven’t shown alarm over political fights ultimately resolved in Washington. Yields on 10-year U.S. Treasury notes declined to 2.56 percent on Aug. 5, 2011, the day of the S&P downgrade, and continued to fall.

Yields on 10-year Treasuries, a benchmark for everything from mortgages to corporate borrowing costs, are down from more than 5 percent in 2007, before the financial crisis of 2008. The 10-year yield fell today to 1.96 percent from 2.01 percent on Feb. 1.

While the debt limit has been temporarily suspended, $1.2 trillion in automatic spending cuts are set to take effect March 1.

© Copyright 2024 Bloomberg News. All rights reserved.

The U.S. Treasury Department lowered its net borrowing estimate for the current quarter by $11 billion, reflecting a higher cash balance early in the year.
Monday, 04 February 2013 04:19 PM
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