A larger projected budget deficit will push net Treasury bill, note, and bond issuance higher in the second quarter of 2008 than in 2007, but will result in a paydown of debt, according to a Securities Industry and Financial Markets Association quarterly survey released yesterday.
The median response forecast a $500 million paydown of debt in the quarter, compared to net issuance of $82.0 billion in the first quarter of 2008, and a second quarter 2007 paydown of $232.7 billion. The survey forecasts a federal budget deficit of $413 billion for fiscal 2008, compared to the $168 billion 2007 deficit, which was the smallest shortfall in five years.
“The year-over-year projected issuance increase is the result of the higher budget deficit forecast for fiscal year 2008, reflecting a slower economic growth outlook due to the continued impact of weakness in the housing sector and current conditions in the credit markets,” said SIFMA managing director Steve Davidson. “Taking into account the market environment, the committee continues to favor a short-duration portfolio. The survey results also suggest a view that market conditions may ease later in the year.”
Net new issuance of Treasury coupon securities is expected to be $47.0 billion in the second quarter, up from $36.5 billion in the first quarter of 2008 and $25.4 billion in 2007’s second quarter. A projected $47.5 billion paydown of Treasury bills reverses the $45.5 billion net issuance in the first quarter of 2008 and falls short of the $258.0 billion paydown in the same period of 2007.