The Treasury is viewed as most likely to hit the debt limit in late July or August, and could also warn that earlier is possible, as it urges Congress to act to avoid a calamitous default. “There’s incentives for them to lean more conservative in terms of their guidance” to encourage Congress to raise the debt ceiling before it's too late," said Tom Simons, a money market economist at Jefferies in New York.
The Treasury on Monday will give its general borrowing
estimate for the coming quarter and on Wednesday will provide
more details on specific debt issuance and some discussion
around refinancing topics.
Jan Nevruzi, U.S. rates strategist at NatWest Markets in
Stamford, Connecticut, said the Treasury is unlikely to specify
exactly when it expects to run out of funds, but it could give
"different hints of how they see the government spending
evolving.”
This could include new estimates or indicating that they
expect a lower ending cash balance in the coming quarter, he
said.
The government could also indicate plans to increase
issuance of Treasury bills once the debt ceiling is raised,
which would provide some relief to investors struggling with a
dearth of safe options to park cash.
The Treasury has been cutting issuance of Treasury bills as
it bumps up against the debt limit. Investors have also been
crowding into shorter-dated bills and shunning others that come
due in July and August as they try to avoid any bills maturing
when the risk of default is the highest.
TREASURY BUYBACKS ON THEIR WAY?
The Treasury may also give new guidance on whether it is
likely to undertake buybacks of its outstanding securities,
after asking dealers about the option for a second time,
following a presentation by the Treasury Borrowing Advisory
Committee (TBAC) on the topic in February.
“I do think the fact that they’ve asked so consistently
about it means that they are very seriously considering it,”
said Ben Jeffery, an interest rate strategist at BMO Capital
Markets in New York.
The Treasury could enhance market liquidity by buying back
older issues that trade less frequently and increasing issuance
of more popular recently issued debt. Market liquidity was a
pressing concern when the Treasury first raised the prospect of
buybacks in a dealer survey in October.
However, “with the Fed now basically reaching its cycle
peak, liquidity has improved… so the case for buybacks perhaps
has fallen a little bit,” said Nevruzi.
Buybacks could also be used for debt management purposes,
such as through smoothing payments across months when they might
otherwise be very uneven. But designing a program is complex and
requires substantial further analysis, TBAC said.
Any uncertainty over what issues the Treasury will buy could
also make it difficult to trade certain bonds, while banks and
investors may also try to game purchases for profit, Simons
said, adding that this is like opening "Pandora's box."
“It is diametrically opposed to the idea of being regular
and predictable.”
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EXPLAINER-Looming US debt ceiling fight is starting to worry
investors FACTBOX-What's in the US House Republicans' debt-ceiling
spending-cut bill? FACTBOX-The U.S. debt ceiling and markets: Gauging the fallout ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Karen Brettell in New York
Editing by Matthew Lewis)
