US Treasury Sets Plan to Borrow $1.665 Trillion in the Coming Six Months

February 4, 2025 TruthUSA

Investors are now turning their attention to the Treasury’s borrowing strategies.

The U.S. Treasury has revealed plans to borrow $1.665 trillion over the upcoming six months, as announced by the department on February 3, marking the first estimate under Secretary Scott Bessent.

According to the Treasury Refunding Estimate, the department anticipates borrowing $815 billion from January to March, which is $9 billion less than the previous forecast in October, largely due to an increased beginning-of-quarter cash balance.

For the period from April to June, the Treasury expects to borrow $123 billion.

The Treasury reported it borrowed $620 billion in the October to December quarter, which was $74 billion more than initially projected. Moreover, it concluded this period with a cash balance totaling $722 billion.

As the new Treasury chief takes charge, market observers have been closely monitoring whether there will be shifts in policy, such as transitioning from short-term debt issuance to longer-term maturities and aiming for a reduced cash reserve. Such changes could introduce volatility into the bond market.

A detailed analysis of the Treasury’s plans for bond and note sales will be available in its upcoming Treasury Refunding report, scheduled for publication on February 5.

Bessent has openly criticized his predecessor, Janet Yellen, for relying excessively on short-term Treasury bills to fund the national debt and to manage escalating budget deficits. Instead, he emphasized during a Manhattan Institute event last summer that the U.S. government should focus on securing fixed interest rates for longer durations.

“I believe there is a possibility of entering a favorable reflexive cycle on debt costs because financing at the front end has not been prudent,” he commented.

Republican lawmakers, such as Sen. Bill Hagerty (R-Tenn.), suggested that Yellen relied heavily on short-term debt instruments as she anticipated the Federal Reserve would lower interest rates before issuing longer-maturity bonds.

Yellen dismissed this assertion during a Senate Appropriations Committee hearing on June 4.

“We never attempt to time the market,” Yellen stated to Hagerty.

The Treasury Borrowing Advisory Committee (TBAC), an advisory panel of financial sector experts, noted last year that T-bills—having maturities between 30 days and a year—help in lowering the financing costs of the federal government. The committee’s findings also indicate that some research suggests that increasing the issuance of short-term debt tools may enhance the financial system’s stability.

The new Treasury administration’s challenge involves managing the maturing short-term debt.

While Yellen issued trillions in new debt, focusing heavily on T-bills, Bessent will now need to refinance a considerable amount of maturing debt amidst a high interest-rate environment.

The domestic demand has been weak over the last couple of years, leading to foreign investors contributing significantly to Treasury purchases.

“As the Federal Reserve began to increase interest rates in March 2022, foreign private investors ramped up their Treasury purchases, drawn by the more attractive yield levels,” remarked Torsten Slok, chief economist at Apollo, in a recent email to The Epoch Times.

Foreign markets hold over $8.6 trillion in Treasury securities, with Japan holding $1.098 trillion, followed by China with $768 billion, and the United Kingdom with $765 billion.

The benchmark yield for 10-year Treasuries is approximately 4.56 percent, while the 1-year yield stands at 4.2 percent and the 30-year bond yield is at 4.8 percent.

These developments are occurring against a backdrop of escalating national debt.

The current national debt has surpassed $36 trillion and is projected to exceed $52 trillion by 2035. Increases in mandatory expenses, such as Social Security, Medicare, and Medicaid, are expected to drive up net interest costs annually for the next decade, accumulating interest payments close to $14 trillion.

The national debt clock displayed at a bus station in Washington on Jan. 2, 2025. (Madalina Vasiliu/The Epoch Times) — The national debt clock displayed at a bus station in Washington on Jan. 2, 2025. Madalina Vasiliu/The Epoch Times

Recently, the Federal Reserve indicated that interest rates may remain elevated for an extended period. The December Summary of Economic Projections revealed the median policy rate is expected to decrease twice from the initial estimate of four. Inflation has remained a primary factor influencing the U.S. central bank’s more aggressive monetary policy stance.

In conjunction with these borrowing challenges, Bessent will also have to contend with the debt ceiling. Before Bessent’s appointment, Yellen had already started implementing extraordinary measures to avert a U.S. default, such as postponing investments in government retirement funds and utilizing the Federal Reserve’s general account.

The predicted X-date—the point at which the Treasury will run out of options—is expected to occur around June or July.

“This provides Congress and the new president with the opportunity to resolve this self-created predicament, likely by the summer months,” commented Lawrence Gillum, the chief fixed income strategist at LPL Financial, in a note to The Epoch Times. “However, once these measures are exhausted, the government risks defaulting on its obligations unless lawmakers and the president agree to raise the ceiling on the U.S. government’s borrowing limit.”

During his confirmation testimony before the Senate Finance Committee last month, Bessent voiced his support for eliminating the debt ceiling. President Donald Trump has also expressed his backing for measures to remove the debt limit.

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