Borrowing Forecast Raised by 82%: U.S. Treasury’s Q3 Issuance Exceeds $1 Trillion Following Debt Ceiling Lift

July 28 — Following the passage of large-scale tax cuts and spending legislation under the Trump administration and a subsequent hike in the federal debt ceiling, the U.S. Treasury is now accelerating its debt issuance for the current quarter.

On Monday (U.S. Eastern Time), the Treasury Department projected net borrowing for July through September 2025 at USD 1.007 trillion, marking an increase of more than USD 450 billion from the April estimate of USD 554 billion—a revision of nearly 82%.

The upward adjustment was broadly expected by markets, which now await the full refunding statement scheduled for release on Wednesday at 8:30 a.m. Eastern Time to gain insight into how the additional borrowing will be structured.

The elevated third-quarter borrowing target primarily stems from disruptions linked to the federal debt ceiling. Earlier this month, the "Big Beautiful" bill raised the ceiling by USD 5 trillion, prompting a renewed round of debt issuance and enabling replenishment of the Treasury General Account (TGA). In the first half of the year, issuance was curtailed as the Treasury drew on its cash reserves to meet obligations while avoiding a ceiling breach.

April’s projection had presumed a June-end cash balance of USD 850 billion, yet the actual balance stood at only USD 457 billion. This USD 393 billion shortfall was the main factor behind the increased borrowing requirement.

On the same day, the Treasury forecasted net borrowing for the fourth quarter (October to December) at USD 590 billion, assuming that the cash balance rebounds to USD 850 billion by year-end. Throughout H1 2025, debt issuance was sharply reduced to remain within the previous ceiling, leading to diminished cash reserves and prompting a substantial borrowing rebound now that constraints have lifted. As previously outlined by Wallstreetcn, the TGA functions as a repository for federal revenue and is used to fund government operations. Adequate balances are essential to avoid payment delays. When the debt limit is unresolved, extraordinary measures and TGA drawdowns help stave off a potential default.

Treasury data released Monday also revealed that actual borrowing between April and June was only USD 65 billion—well below the April forecast of USD 514 billion. The USD 449 billion gap was attributed to higher net cash flow and reduced opening balances.

Thomas Simons, senior economist at Jefferies, remarked in a recent report that rebuilding the Treasury’s cash position would largely rely on short-dated bill issuance. The department has already begun ramping up short-term offerings to reach its USD 850 billion cash target by the close of September.

Tax policies introduced under the Trump administration have driven up customs revenues. Treasury officials noted Monday that tariff receipts are projected to increase further over the coming months. However, officials cautioned that final decisions on tariff rates are still pending. In contrast, corporate tax collections are expected to decline, partially offsetting gains from duties.

Two weeks ago, the Treasury recorded a June surplus of more than USD 27 billion—the first for that month since 2017—driven primarily by about USD 27 billion in customs revenue. From the fiscal year’s start in October 2024 through June, tariff revenue totaled USD 113 billion, up 86% year-over-year and establishing a new single-year high.

Last week, Treasury Secretary Bessent described tariff income as "massive," estimating it could account for 1% of GDP. Projections suggest cumulative tariff revenue may reach USD 2.8 trillion over the next decade. Monday’s report marked the Treasury’s initial disclosure in its quarterly debt management series.

On Wednesday, the department will outline auction plans for medium- and long-term securities for the upcoming months. Market consensus holds that volumes will remain consistent with those announced three months ago.

Apart from reduced initial cash balances, the updated Q3 borrowing projection exceeds April’s by USD 60 billion. With tariff revenues up by approximately USD 25 billion, analysts consider the adjustment to be within expected bounds.

The Treasury’s cash restoration strategy presumes that the newly increased debt ceiling will remain intact through September 30. Investors are expected to examine Wednesday’s refunding statement for a detailed breakdown of the revised borrowing plan.