TBAC-O Road? Treasury Announces Big Cut In Borrowing (Despite Skyrocketing Deficits) But Shifting Towards More Expensive, Higher Duration Coupon Bonds

Confounded Interest ^ | 01/31/2024 | Anthony B. Sanders

[Kaiser8408a]

Constitution Avenue in Washington DC is actually becoming Tobacco Road. No, not the dysfunctional family of Georgia sharecroppers during the Great Depression, but the Treasury Borrowing Advisory Committee (TBAC).

On Monday, after we got the first part of the Treasury’s Quarterly Refunding Announcement (QRA), in which the Treasury unexpectedly announced a big drop in its borrowing estimates for Q1 (from $816BN to $760BN) coupled with a shockingly low calendar Q2 borrowing estimate of just $202BN (as a reminder we got the second part of the QRA this morning which came in very much as expected)…

Commenting on this surprise drop in expected borrowing, on Monday we said that “the numbers also mean that the Reverse Repo facility will be fully drained by Q2, and we expect that on Wednesday we will learn that the bulk of the reduction in Q1 and Q2 estimates will be due to sharply lower Bill issuance for one simple reason: there is just no more Reverse Repo cash to buy it all.“

In fact, as the chart below – which we have dubbed the scariest chart in the Treasury’s presentation to TBAC today (link here) – shows, with Bills expected to fund some $442 Billion of the $760BN funding deficit in the Jan-March quarter (the balance of $318BN funded by coupons), in Q2 the Treasury now anticipates a $245BN DECLINE in net Bills outstanding (i.e., not only no incremental Bill funding but a quarter trillion maturity in Bills outstanding). In other words, while we expected a “sharply lower” Bill issuance in Q2, the Treasury is actually expecting a $245BN drawdown in Bills.

[linMcHlp]

bttt

[eyeamok]

Music video by Johnny Winter, Edgar Winter performing Tobacco Road (Live)

https://www.youtube.com/watch?v=af0rV6dli_o

[eyeamok]

Saw this LIVE at the Hollywood Palladium many many years ago.

[Karl Spooner]

Coupons, huh.

Along with stealing other countries money there is this. A lot of money ain't going to flow our way anymore. We need a better scheme!

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South Africa Says Five Countries Confirm They Are Joining BRICS
By Reuters
Jan. 31, 2024, at 9:53 a.m.

"OHANNESBURG (Reuters) - Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates have confirmed they are joining the BRICS bloc after being invited last year, South Africa's Foreign Minister Naledi Pandor said on Wednesday."

BRICS++++++

[KarlInOhio]

Coupon bonds refer to bonds that pay interest for the duration of the bond. They used to have a part you clipped off ever half-year and mailed in to get the interest payment. This is the opposite of something like a savings bond where you get all of your interest when you cash it in at the end.

[cymbeline]

“Coupon bonds refer to bonds that pay interest for the duration of the bond. “

Thanks for that. In the big picture, what’s the significance of the borrowing being done specifically with coupon bonds?

I picture the government wanting money, and they borrow it from someone with a set of payback terms.

Why does the government need this borrowed money? Doesn’t it hand out money in the form of loans (Treasury notes) backed up by nothing.

[Vermont Lt]

So, this means we are funding near term expenses with longer term debt?

This is what Clinton did to make the “deficit” look better.

This works when long duration interest is lower—but you have to pay it early.

A better way to think of this is buying groceries for tonight’s dinner with a credit card you pay off over five years.

This does not end well for the next President.

[jimwatx]

Ian Carroll @Cancelcloco US commercial banks’ notional derivative contracts on precious metals are uhhhh… doing a thing… Orange is contracts with <1yr maturity. Source: OCC second quarter 2023 report. Can the smart people please confirm that I’m seeing what I think I’m seeing? 🧐 https://twitter.com/Cancelcloco/status/1752450018173423640 Look at that chart. All the big boys are betting on precious metals.