US Expects First Cut in Debt Since 2007
The U.S. Treasury expects to pay down debt in the second quarter of 2013 as the budget deficit that has dominated national politics starts to shrink.
The forecast of a quarter of net debt repayment for the first time since 2007 shows how:
- tax increases;
- a cyclical recovery in tax revenues; and
- a squeeze on spending
Ahead of an announcement on Wednesday on the details of its quarterly borrowing schedule, the Treasury said it expects to repay a net $35 billion in the second quarter, compared with a February estimate that it would have to borrow $103 billion.
"The decrease in borrowing relates primarily to higher receipts, lower outlays, and changes in cash balance assumptions," said the Treasury.
The second quarter is always the best for government cash flow because tax returns are due in April. The Treasury expects to issue $223 billion of debt again in the third quarter.
But the return to one quarter a year of debt repayment highlights how aggressively the US has cut the deficit this year, despite concerns about growth and political wrangling over tax and spending decisions.
Nominal spending is basically unchanged since the final quarter of 2010, one of the longest periods of restraint in postwar U.S. history. Meanwhile, tax revenues have picked up with the economic recovery, and the expiration of a payroll tax break at the start of the year is adding about $10 billion a month to revenues.
"The paydown this quarter—the first since 2007—is emblematic of the turn in budget finances from horrible, to grim on their way to steadily better," said Eric Green, chief economist at TD Securities in New York.
The International Monetary Fund forecasts that the U.S. will borrow 6.5 percent of gross domestic product in 2013, down from 8.5 percent in 2012 and 10 percent in 2011. But analysts at Goldman Sachs estimate that in the first quarter of 2013 the deficit was running at a cyclically adjusted level of just 4.5 percent.
Bond investors have been expecting better U.S. fiscal data. Expectations of a falling net supply of Treasurys helped the yield on 10-year Treasury notes to approach their lows for the year on Monday, briefly dropping below 1.65 percent.
Steven Ricchiuto, chief economist at Mizuho Securities, said the Treasury borrowing figures for this year suggest "no government funding pressure on the markets. This fits nicely with our call of returning to the July 2012 low in yields."
Ian Lyngen, strategist at CRT Capital, said falling net issuance while the Fed buys $45 billion of Treasurys a month represents "a shift that will surely keep downward pressure on yields."
He added: "As an aside, the improving fiscal situation of the U.S. Treasury does allow more time before the debt-ceiling becomes an issue again."
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