Late Feb Treasury Model Update

***For mortgage readers, I will have updated FHA underwater and delinquency distributions maps out later this week***

I updated the Total Treasury Model (“TTM”) over the weekend with both maintenance fixes (I regularly monitor and update TGA categories as needed for any deposit or withdrawal categories where the realized amounts are far off from the model projected amounts) and to take into account the SCOTUS decision on Friday striking down many of the Trump tariffs. Updated model output is attached at the bottom of this post.

Material Changes this model run

Updated full fiscal year expectations for Department of Education Withdrawals (mostly student loan payments) from 170b to 190b. That still projects down a realized 216b last fiscal year but not by quite as much as I originally thought. As a result ~15b more spending is projected from the TTM through September in this category vs. my QRA projection run.

For the tariffs, I have dialed back the monthly deposit expectations for DHS - Customs Duties Taxes and Fees from 32b a month to 27b a month starting in March. This reflects my best guess of what the net impact from the struck down tariffs and the new 15% global tariffs will be. Highly dependent of course on the new global tariffs coming into effect and there is the 150day issue for the global tariffs but we will cross that bridge when it comes. I will keep updating the models expectations as things play out. Note that I made no attempt to model the TGA cash flow that will likely eventually be required to refund the struck down tariffs. I think that will take some time to play out in the courts and will thus be a while before it hits the TGA. Again, I will keep updating the models expectations as events unfold on this front.

How are tax refunds going?

Through the first two weeks of individual tax refund season, the model was spot on with its projections, last week however the refund withdrawals were 5b more than the TTM was projecting, almost all do to a ~5b under projection of last Thursday’s amount, which was the last day for which we have TGA data. I dont read anything into that at this point since it could just be intraday volatility that the TTM is actually pretty good at projecting but its not perfect. So as for now, largely on track to hit 370b (67b over last year) in tax refunds this fiscal year but Ill be watching closely.

Bill Issuance Implications

Between the lesser tariff revenue and greater projected Department of Education Spending, the bill issuance reductions in late May/early June look now like only one week of short tenor reductions will be needed. The July increases will be a bit larger as well. I am now also projecting some small increases to the longer tenor bills in that timeframe. Full details are included in the model output.

Thanks,

John

Model Output