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UPDATE 2-U.S. Treasury to borrow $276 bln in fourth quarter
November 2, 2009 / 8:38 PM / 8 years ago

UPDATE 2-U.S. Treasury to borrow $276 bln in fourth quarter

* U.S. Treasury says borrowing needs ease in fourth quarter

* Borrowing decline to be short-lived, pick up in 2010

* Debt sales details to be issued at Wednesday refunding (Adds reaction, paragraphs 4-6, byline)

By Glenn Somerville and Nancy Waitz

WASHINGTON, Nov 2 (Reuters) - The U.S. Treasury Department said on Monday it expected to borrow a net $276 billion through sales of marketable debt during the October-December quarter, much less than it previously anticipated.

The fourth-quarter borrowing total was $209 billion less than forecast in July, due in part to paydowns in a Supplementary Financing Program that Treasury operates to raise money to support Federal Reserve liquidity programs instituted to revive lending after the housing market crash.

The October-December borrowing needs include $15 billion for the Fed’s SFP.

Financial market participants had anticipated reduced fourth-quarter borrowing, noting that Treasury has been paying down bills, but said it was moderately encouraging.

“It’s not declining as much as one would like but it’s a step in the right direction,” said Ward McCarthy of Jefferies & Co Inc in New York.

One reason for the decline that Jefferies cited is the possibility that the Federal Deposit Insurance Corp may take in as much as $50 billion in assessments to rebuild the insurance fund it operates for banks, which would reduce its need to borrow money.


Regulators have proposed that banks prepay three years of fees to offset the rising cost of bank failures.

Jefferies expects an $82-billion refunding to be announced on Wednesday, made up of a $40-billion three-year note, a $25-billion 10-year note and a $17-billion 30-year bond.

But borrowing will accelerate at the start of next year.

In its quarterly estimate of market financing needs, Treasury said it expects to borrow about $478 billion in the January-March 2010 period and that it expects to have an end-of-quarter cash balance of $45 billion.

Treasury borrowed $393 billion in net marketable debt in the July-September quarter, ending the quarter with a cash balance of $275 billion.

In July, Treasury had estimated it would need to borrow a larger total of $406 billion but said its spending during the July-September quarter was less than expected.

Treasury will lay out details about the specific mix of securities that it intends to sell during the fourth quarter at a quarterly refunding press conference on Wednesday, Nov. 4.

It is also expected to say then whether it intends to move to a longer-dated 30-year Treasury Inflation Protected Security from the 20-year maturity that it now issues.


As the economy has shown signs of emerging from severe recession, Treasury has begun paring back borrowing for the SFP program that the Fed used to add liquidity to the financial system and to manage the size of its own balance sheet.

One reason that Treasury said in mid-September that it was reducing the SFP program was that it feared soon piercing a Congressionally set debt limit of $12.1 trillion if it did not do so.

The debt limit has not yet been raised and Treasury officials said any questions about when it might hit the debt ceiling would have to wait until Wednesday’s press conference.

President Barack Obama said on Monday that with the United States facing huge deficits, it cannot rely on the past “debt-driven” models for growth.

Commentators point out that U.S. budget deficits are likely to remain high for years, troubling financial market participants who worry that investors’ appetite for U.S. debt may not keep pace with the government’s borrowing needs.

A survey of primary market dealers -- the big Wall Street firms that deal directly with Treasury and advise it on market conditions -- found that they expect another deficit in fiscal 2010 of about $1.4 trillion, a repeat of fiscal 2009’s record shortfall between spending and income. (Additional reporting by Richard Leong in New York; Editing by James Dalgleish)

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