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The numbers: The Treasury Department said Monday it expects to borrow a record $3 trillion in the second quarter to pay for the coronavirus relief measures passed by Congress. Looking ahead to the third quarter, Treasury said it expects to borrow $677 billion.
What happened: In February, Treasury had been assuming a modest paydown of debt. This is relatively normal as April 15 is the tax deadline for households. But borrowing plans were upended by the rapid spread of COVID-19 across the country. The borrowing estimate assumes a cash balance of $800 billion at the end of June and at the end of September. Additional details of the borrowing needs will be released at 8:30 a.m. Wednesday. The borrowing estimate for the April-June quarter is larger than borrowing for any full fiscal year. The largest borrowing need for any full year was $1.8 trillion in fiscal year 2009 due to the financial crisis. Treasury borrowed $1.28 trillion in fiscal year 2019.
Big picture: Congress has approved nearly $3 trillion to aid businesses and workers hurt by the virus and the stay-at-home orders, and Treasury has to issue new debt to pay for the spending. The government also lost revenue from the deferral of taxes from April until July. Federal Reserve Chairman Jerome Powell said lawmakers will likely need to pass additional measures if the economy is to rebound strongly later this year.
What are they saying? Significant increases to all nominal coupon auction sizes, as well as inflation-protected securities and floating rate notes are inevitable in the coming quarter, and in August as well, said Thomas Simons, money market economist at Jefferies.
Market reaction: Yields on the 10-year Treasury note TMUBMUSD10Y, 0.640% were slightly higher at 0.642% in afternoon trading. Bond prices fall as yields rise. The yield is down 1.284 percentage points over the past four months.
