US Treasury borrowing levels not expected to change for first quarter

The US Treasury Department is expected to keep the sizes of debt auctions steady when it announces its quarterly refunding next week amid uncertainty over the fate of Democratic President Joe Biden's massive fiscal stimulus plan, analysts said.

While the Treasury has been boosting the amounts of its debt sales across the maturity curve to pay for previously enacted spending measures to aid the coronavirus-battered economy, it also has a sizeable cash balance to tap.

On Monday, the Treasury will announce its quarterly borrowing requirement, followed on Wednesday with refunding details, including anticipated auction sizes for each maturity of notes and bonds.

Net cash raised through Treasury securities issuance totaled $4.28 trillion in 2020, according to Securities Industry and Financial Markets Association (SIFMA) data.

Tom Simons, money market economist at Jefferies, said the Treasury is in a little bit of "limbo" given uncertainty over the size and timing of a new round of stimulus and that it was "a close call" on whether auction sizes for 2021's first quarter stay steady.

"It would be the least disruptive strategy possible to just deploy what (cash) they already have on hand rather than raise a lot of cash through debt issuance once a bill is passed," he said.

Simons added that coupon auction sizes are already very large and are probably on the borderline of "getting too big for the market to digest all at once."

Biden's $1.9 trillion plan is likely to be trimmed considerably in order to get passed by the US Congress as Republicans and some Democrats have balked at its cost. Democratic leaders said on Thursday they will begin work on the plan next week.

The Treasury's current auction sizes and $1.6 trillion cash balance even with the enactment last month of a $900 billion stimulus package "should easily meet the financing need in 2021 in the absence of major fiscal policy changes," according to Wells Fargo analysts.

"In other words, Treasury could fund $1.2 trillion of additional COVID relief by keeping the current pace of net T-bill and coupon issuance unchanged in 2021," they wrote in a report this week that included expectations Biden's plan would be whittled down to around $900 billion.

Zachary Griffiths, macro strategist at Wells Fargo, said the Treasury may address the cash balance situation, given ongoing forecasts it would fall to $800 billion.

"We'll also be looking for clarity on when they would plan to get the cash balance down to this, quote unquote, new longer-run normal or perhaps at this point they're thinking they're going to keep it even higher to maintain flexibility as we still have a pandemic that is unfortunately not really under control and it's going to require more support from government authorities going forward," he said.

In November, the Treasury pegged its borrowing needs for the first quarter of 2021 at $1.127 trillion, assuming an end-of-March cash balance of $800 billion. Net cash raised from Treasury debt sales in 2020's fourth quarter was $597.4 billion, SIFMA data showed.