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US FISCAL: Debt Pile Rising At $2T/Yr Pace, But Coupon Upsizings To Wait (2/2)

US FISCAL
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The bigger picture is that the deficit stopped narrowing vs pandemic wides at around 3.8% of GDP in 2022 on a 12-month rolling basis, rising back to 8.1% in June 2023 before receding again. The CBO estimates a slight improvement in 2025 and beyond, starting with 6.5% of GDP in 2025, but the longer-term outlook remains poor and the overall narrowing will stall in the mid-5% of GDP area. 

  • Much of that stalling is due to high interest payments, with the primary deficit projected to narrow over the next few years (see chart).  The 97% of GDP debt pile (debt held by the public) at end-FY2023 will have grown to around 99% this month, jumping over 100% next year (per consensus and CBO).
  • That's after trending down from the 2020 pandemic peak of just under 99%, and 79% in pre-pandemic 2019.
  • In nominal terms, the debt pile rose by just under $2T in FY2024 and is set to rise by another $2T in FY2025.
  • Attention will soon turn toward Treasury's guidance for future issuance, with coupon sizes expected by many to increase next year amid continued deficits.
  • The Oct 30 quarterly Refunding announcement is likely to prove too early for any changes in guidance (at August's refunding, Treasury guided that it was not expecting to increase sizes for "at least the next several quarters").
  • There are political sensitivities at play here as well - the fiscal trajectory could change under the next administration (though no major deficit reduction measures are expected from either presidential candidate), and there may well be a new Treasury Secretary in place for the February Refunding round. Additionally there is the end of the debt limit suspension on Jan 1 which throws up some uncertainties for cash management / bill issuance.
  • On the latter, it's widely expected that bill issuance adjustments will sufficient to meet near-term deficits (particularly as TBAC has revised its guidance for bills to average 20% of outstanding debt, vs a lower-implied 15-20% before), with coupon auction sizes unchanged until well into 2025.
  • Those signs point to any coupon size adjustment announcement to wait until mid-2025 at least - current consensus is for the August 2025 refunding round. 

 

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The bigger picture is that the deficit stopped narrowing vs pandemic wides at around 3.8% of GDP in 2022 on a 12-month rolling basis, rising back to 8.1% in June 2023 before receding again. The CBO estimates a slight improvement in 2025 and beyond, starting with 6.5% of GDP in 2025, but the longer-term outlook remains poor and the overall narrowing will stall in the mid-5% of GDP area. 

  • Much of that stalling is due to high interest payments, with the primary deficit projected to narrow over the next few years (see chart).  The 97% of GDP debt pile (debt held by the public) at end-FY2023 will have grown to around 99% this month, jumping over 100% next year (per consensus and CBO).
  • That's after trending down from the 2020 pandemic peak of just under 99%, and 79% in pre-pandemic 2019.
  • In nominal terms, the debt pile rose by just under $2T in FY2024 and is set to rise by another $2T in FY2025.
  • Attention will soon turn toward Treasury's guidance for future issuance, with coupon sizes expected by many to increase next year amid continued deficits.
  • The Oct 30 quarterly Refunding announcement is likely to prove too early for any changes in guidance (at August's refunding, Treasury guided that it was not expecting to increase sizes for "at least the next several quarters").
  • There are political sensitivities at play here as well - the fiscal trajectory could change under the next administration (though no major deficit reduction measures are expected from either presidential candidate), and there may well be a new Treasury Secretary in place for the February Refunding round. Additionally there is the end of the debt limit suspension on Jan 1 which throws up some uncertainties for cash management / bill issuance.
  • On the latter, it's widely expected that bill issuance adjustments will sufficient to meet near-term deficits (particularly as TBAC has revised its guidance for bills to average 20% of outstanding debt, vs a lower-implied 15-20% before), with coupon auction sizes unchanged until well into 2025.
  • Those signs point to any coupon size adjustment announcement to wait until mid-2025 at least - current consensus is for the August 2025 refunding round.