Revised QRA Playbook

John attempts to exit the struggle bus

Greetings again,

Note to John, feel free to maybe publish playbooks that don’t anticipate something happening tomorrow that has literally already happened by the time you publish today. Yup, that’s a facepalm,  just had the days wrong in my head for when this was coming out. Nothing to do but own your embarrassingly public mistake assess any impact it had on my analysis and move on. Fortunately, all it really did to my analysis in my earlier post (https://johncomiskey.substack.com/p/playbook-for-qra-week) is remove the auction announcements on Wednesday from being relevant (since they will come out after the recommended financing schedule and in all likelihood will match what the TBAC recommended for those auctions a few hours earlier. It also removed most of the relevance of the bill offering amounts announced tomorrow. So aside from egg on my face, should be no impact to you the reader. What wasn’t impacted was the analysis on how to interpret the Marketable Borrowing Estimates which were released today. Now that we have them, lets apply the framework I described a few hours ago and see what it means.

Q4

For Q4, the Treasury expects to borrow 776b in privately held marketable debt. This compares to the 881b I projected last week. With this Treasury expects and end of year TGA level of 750b. So two things, 1. The EOY TGA level is not going to 850b. I thought it would, Ill look back over things and see if I can figure out why and report back once I have. But also

2. Since the new privately held debt is 776b, subtracting only 100b for TGA rise (from 650 to 750b) over the quarter we get 676 for Treasury projected deficit (including QT). This is solidly in my “closeish to 681” bucket from my earlier post. So my thinking on coupon issuance that I published last week stays on track. There will however need to be a reduction in bill offering pace between now and the end of the year to account for the 100b not needed to beef the TGA level to 850b. Once I have a little more time, Ill reconfigure my debt projection model and see what the most likely pattern of reduction will be. It could start this week but thinking off the cuff, its probably a little later.

Q1

For Q1, the Treasury expects to borrow 816b in privately held marketable debt. This compares to the 953b I projected for Q1 last week (which held the TGA level steady albeit at the higher 850b level). So the implied fiscal deficit (including QT) is ~137b less in Q1 vs. what I was estimating it to be. One  explanation is I was estimating the quarterly distribution of the FY deficit too heavy in Q1 vs. Q2. I think this is the most likely explanation and if so, does nothing to alter my thoughts on coupon issuance. However, if it instead signals an overall less FY 24 deficit (including QT) than maybe, just maybe it might argue for a slower rate of coupon increase for November through March. I don’t think its likely but I have to acknowledge it. That said, assuming that coupon issuance is unaffected then it means that Treasury will need to ramp bill issuance levels anew in Q1 (from likely lower levels due to lowering them between now and EOY to account for the ~100b they don’t need to raise in 4Q to get the TGA to 850). It will be to meet a target 137b less that what I projected last week (408 net new bills instead of 545) but increases still need to happen to meet that amount. Look for those bill increases to start in February when historically outlays significantly exceed receipts. Ill play out some scenarios in my debt projection model and post what I think is most likely.

So end of the day, I think my coupon issuance projections last week remain solid and the lesser financing need of 100b this qtr and 137b next qtr will be achieved by reducing bill issuance in the remainder of this quarter and a bit less bill issuance increase next qtr. We shall see on Wednesday at 8:30. And I repeat that’s Wednesday 8:30, not Thursday 8:30 like struggle bus John from a few hours ago was saying.

Thanks for reading again.

John