Treasury Expects to Borrow Over $1 Trillion This Quarter

Until President Donald Trump’s tax and spending bill became law in early July, the Treasury was spending its holdings of cash to meet its obligations. Above, two Treasury checks. (Dreamstime)

The Treasury Department said it expects to borrow over a trillion dollars in the current quarter because it began July with a small cash balance and expect less cash flow in the coming months.

The Treasury estimated net marketable borrowing, the difference between the total amount to be borrowed and the amount of debt maturing, to be $1.007 trillion for the three months from July through September. Treasury’s initial estimate, which it made public in April, was for $554 billion.

The Treasury more or less matched the expectation of Wall Street. Strategists from Deutsche Bank had expected the Treasury to revise the borrowing total to $960 billion. J.P. Morgan expected Treasury would out the number at $1.087 trillion. Citi had penciled in $1.01 trillion.

This was Treasury’s first announcement regarding its borrowing since the One Big Beautiful Bill Act became law on July 4, raising the limit on the department’s total borrowing by $5 trillion. Until the limit was increased, allowing the Treasury to borrow more, the government had been spending its holdings of cash to meet its obligations.

As of July 3, it had $313 billion, about half the amount it had a year earlier. The lower cash balance explains why Treasury revised its borrowing estimate by $453 billion in a matter of months.

Treasury projected borrowing at $590 billion in the October to December 2025 quarter.

These so-called refunding announcements, once routine, have become a bigger deal among people who focus on the Treasury and the debt it issues. Some call it the Super Bowl for Treasury strategists. It all started back in 2023, when the Treasury, under former Secretary Janet Yellen, announced a larger-than-expected increase to borrowing that sent 10-year and 30-year yields sharply higher.

The focus on refundings remains intense because the government is expected to borrow increasing amounts to cover the cost of servicing its existing debt.

Tax cuts, pushed by President Donald Trump, mean the government is projected to get less revenue than it would have had otherwise. Some of this will be offset by tariffs, but there is a big question mark on how much given the changing deal terms with various countries. In June, the U.S. pulled in $27 billion in custom duties, a 302% jump from a year earlier, according to the Treasury monthly budget statement.

Next up, investors prepare for part two of this refunding announcement, with details on how Treasury divides this debt out on Wednesday. Most Wall Street strategists expect Treasury to keep the amount it borrows on the long-end—think 10-, 20-, 30-year debt-unchanged and boost sales of T-bills, or shorter-term debt.

The division matters because a deluge of bills opens up the government to the whims of the market. If conditions become unfavorable—such as a spike in inflation, or higher federal-funds rate—investors will demand more yield and push government interest-rate costs higher.

In contrast, keeping longer-term debt consistent inadvertently affords the government time to wait until the Federal Reserve lowers interest rates before the Treasury issues more debt. The downside is that longer-term rates may not go down even if the Fed lowers its fed-funds rate.

Strategists from J.P. Morgan project the Treasury will have to sell more longer-dated debt come early 2026 while Wells Fargo and Barclays eye 2027. The market could do with some clarity on Treasury’s next moves.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com.